Central banks face higher inflation

THE world’s central bankers are in a quandary over the Iranian war and the inflationary pressure it generates. They must be reflecting that, having gone through a big inflationary period in 2022-23, inflation expectations are not well anchored.

Central banks’ best policy would be to try to anchor those expectations and give no solace to those who feel that more inflation is coming.

But two very important problems could lead them to opt for a different and more inflationary solution.