• In today’s Comment we will (relatively briefly) discuss why we are not about to have a rerun of the 1970s stagflation or a Volcker-like central bank response to stamp out inflation. That is not to say that that we can rule out sustained high inflation etc. – it’s just that we think it is not likely because it is within central bank’s power to contain inflation. Containing inflation will have a cost in the form of lower output, though not necessarily a recession. It doesn’t take a genius to figure out that the Phillips Curve has shifted up. That is: for any given level of employment, inflation will be higher than it was before the pandemic. The Phillips curve might have flattened, meaning that a decline in inflation ‘requires’ a stronger decline in employment than would have been the case pre-crisis. But, as the famous economist Thomas Sowell once quipped, there are no solutions, only trade-offs.


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