Inflation is the word striking fear into global financial markets, and US data last week was far from reassuring. The world’s largest economy reported inflation running at 5% in May, up from 4.2% in April. It is on the move in the UK too, doubling to 1.5% in April, its highest level since the start of the pandemic in March 2020.
From New York and Tokyo to the City of London, traders are obsessed with the likely course of rising prices, and how central banks will react. Economists based in the Square Mile say their clients ask about little else when they demand to know which way the financial wind is blowing.
Recent interventions by the former Bank of England governor Lord King and former US Treasury adviser Larry Summers have stoked the debate.
Both warn that an inflationary spiral could soon take hold and, worse, trigger a sense of fear among consumers and businesses, who will come to believe that high and rising prices are the…