As inflation continues to mount worldwide, “central banks are scrambling to control it without tipping their economies, and indeed the world, into deep recession,” writes Kenneth Rogoff in a new essay. But as they work to keep prices down, banks “may also be confronting a long-term shift that neither policymakers nor financial markets have yet taken into account”: inflation may be here to stay.
The forces driving today’s monetary crisis, from the war in Ukraine to the lingering effects of the COVID-19 pandemic, “may eventually dissipate”—but “the era of perpetual ultralow inflation will not come back anytime soon,” writes Rogoff. What lessons can central banks—and policymakers—learn from their failure to respond to rising prices early on? Rogoff argues that banks will need new tools to help them resist political and intellectual pressures as they seek to confront economic challenges in the years ahead. “Central banks must be allowed the freedom and focus necessary to achieve their core mandate,” he asserts. If they aren’t granted this independence, the global economy may well continue to “suffer seismic shocks.”
Read more from Foreign Affairs on the forces shaping the global economy:
“Inflation and the Future of Economic Stimulus” by Sebastian Mallaby
“Why Regional Ties Win the Day” by Shannon K. O’Neil
“The Limits of Economic Power” by Barry Eichengreen
“China’s Economic Reckoning” by Daniel H. Rosen
“How Europe Surpassed America in the Quest for Economic Integration” by Matthias Matthijs and Craig Parsons
