Higher inflation means central banks have less room to cut rates or ease monetary policy and, as a result, investors are likely to be far less forgiving of weak company revenues or data showing poor economic growth.Įnergy prices are not the only concern. By writing inflation off as “transitory” before it had even got going, central bankers now appear complacent, and this could undermine the delicate compromise between encouraging growth and unleashing inflation. It was always the case that the post-lockdown economic rebound would be accompanied by growing pains, but now the growth impetus is fading and the growing pains are taking centre stage. The credibility of central bankers took another knock last week, as surging costs in the energy sector not only increased estimates for peak inflation, but also prolonged the peaks themselves.
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