Why stagflation is a growing threat to the global economy

From trade wars and deglobalisation to ageing populations and populist politics, there's no shortage of inflationary threats on the horizon

There is a growing debate about whether the inflation that will arise over the next few months will be temporary, reflecting the sharp bounce-back from the Covid-19 recession, or persistent, reflecting demand-pull and cost-push factors.

Several arguments point to a persistent secular increase in inflation, which has remained below most central banks' annual 2% target for more than a decade. The first holds that the US has enacted excessive fiscal stimulus for an economy that already appears to be recovering faster than expected. The additional $1.9tn (1.4tn) of spending approved in March came on top of a $3tn package last spring and a $900bn stimulus in December, and a $2tn infrastructure bill will soon follow. The US response to the crisis is thus an order of magnitude larger than its response to the 2008 global financial crisis.