Charles Goodhart, Manoj Pradhan, 25 October 2021

The current mini-surge in inflation is forecast to return to central bank targets towards the end of 2022, or shortly thereafter. However, there is also a risk of inflation remaining persistently high for longer. This column discusses the implications of such a contingency for central banks and monetary policy. The authors warn that sudden policy reversals could lead to severe downturns in financial markets and significantly damage public sector balance sheets. Instead, they call on central banks to develop concrete plans for dealing with persistently higher inflation, with a particular focus on their balance sheet policies in a world of rising nominal interest rates. 

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