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Three reasons to believe that a new era of high inflation is beginning

To misquote Milton Friedman, inflation is often and mostly a monetary phenomenon. 

Across rich and emerging economies, public-debt loads have soared over the past two decades. Central banks will eventually have to help finance governments’ obligations, say by creating new money to buy bonds. 

The fiscal firepower deployed during the covid-19 pandemic may also reflect governments’ greater openness to using stimulus to fight recession

Population growth in the rich world has slowed dramatically owing to demographic change and lower immigration.

Globalisation served as a “gigantic shock absorber”, from the 1980s into the 2010s, noted Isabel Schnabel of the European Central Bank, such that shifts in demand or supply were easily met through corresponding adjustments to production, rather than wild swings in prices. 

Most crucially, there is less intellectual confusion today than there was in the 1970s. As Mr Powell noted, central bankers once needed convincing that they could and should bear responsibility for the level of inflation

The Economist 30 August 2022

A shift into a 1970s-style era of high and unstable inflation would be a calamity

Martin Wolf FT 30 August 2022

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