Soaring commodity prices, rising headline inflation and weakening economic growth: for those whose memories stretch back to the 1970s, this combination brings painful memories. It reminds them of the mistakes made by the central banks that accommodated the upsurge in inflationary expectations rather than contained them. Inflation was finally brought back under control in the early 1980s. But the costs of letting it escape were huge. Could we be making the same mistakes again?Yes, we could. Though one positive factor is that enough people do remember the 1970s as to now limit public enthusiasm for loose monetary policy as an economic cure. For me, inflation is a bad memory from a '70s childhood, much like the same decade's demonic-possession craze.
Wednesday, March 5, 2008
That '70s inflation
In the Financial Times, Martin Wolf writes on "Life in a tough new world of higher commodity prices":