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Inflation is going up - how much it does so depends on expectations

Sunday Times economics editor David Smith asks what inflation could mean for the economy and how central banks might react.

Now that financial markets have stopped worrying so much about the pandemic, viewing vaccines as the way out, they have started to obsess about inflation. Every investment bank worth its salt is holding webinars on inflation, with some saying that it tops the list of concerns among their clients. 

There are good reasons for this. Central banks, with quantitative easing (QE) of mind-boggling proportions over the past 12 months – with more from the Bank of England than over the previous 11 years – bet the house on helping to prevent a Cocvid-19 economic collapse. Along the way, they also made it easier for governments to fund massive budget deficits. 

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