Walking the credibility tightrope

With CPI soaring to four-decade highs, G10 central banks have been struggling to regain their inflation-busting credibility that is being ridiculed by persistently higher data, and which has forced them to throw “transitory” out the window.

Their rhetoric has hardened further this year to stern language about normalising rates, controlling inflation expectations, and quickening QE tapering. As consumer savings and incomes continue to be eroded by accelerating price increases, the policymakers reaction has been accelerating too. The Bank of England followed the Reserve Bank of New Zealand and increased interest rates in two consecutive meetings for the first time since its independence in 1997. The European Central Bank hinted at tightening monetary policy for the first time in over a decade, and other G10 Central Banks are ...