From the global financial crisis of 2008–9 until not so long ago, central banks ruled the world. Ben Bernanke, head of the Federal Reserve, and Mario Draghi, president of the European Central Bank, regularly appeared together in the Forbes list of the top ten most powerful people in the world, alongside Vladimir Putin and the Pope. 

That is not the case today. The successors to those masters of the financial universe are seen to have feet of clay. They have fallen down on the job. Inflation is running way above their targets, in several countries some five times higher than the 2 per cent guideline to which they remain formally committed. A Premier League football manager with that kind of record would by now be exploring opportunities in Saudi Arabia or Australia. 

So what went wrong? To simplify, there are two views of why we are where we are and where we might be heading, one right and one wrong. At least that is Stephen King’s reading.  

In one view, the situation is primarily the result of the highly unusual economic circumstances in which we find ourselves. The coronavirus pandemic was a remarkable exogenous shock, to which central banks and governments were bound to respond aggressively. Central banks held interest rates down and governments sprayed money around with gay abandon, to prevent the Covid-induced heart attack from becoming fatal. As a result, the recovery, when it came, was very strong, and revealed supply-side problems. Labour (especially here and in the USA) left the economy and capital capacity was constrained. So bottlenecks appeared and prices rose. Add to that the impact of the war in Ukraine and a dramatic rise in energy prices and you had a perfect inflationary storm, which central banks could not possibly have foreseen. 

So inflation may be high now, but we should not fret too much. Energy prices have already fallen from their 2022 highs; inflation will gradually ease during 2023 and will be safely back in the target range by the end of 2024, following some – in historical terms – modest