Stagflation rears its ugly head

It is only a year since everyone was worried about deflation. Now, stagflation, the dreaded combinat...

It is only a year since everyone was worried about deflation. Now, stagflation, the dreaded combination of inflation and stagnation that characterised much of the 1970s, is brewing again. The European Central Bank, led by president Jean-Claude Trichet, is busily preparing the markets for an increase in euro-area interest rates to head off the threat of inflation. That would be the wrong policy response. In reality, there is little evidence of a sustained turnaround in consumer demand, employment or wages that would justify fears of inflation. It is the stag the ECB should be worrying abo...