How to Win the Unfinished Fight Against Cost-of-Living Shocks
Raising interest rates isn’t always the best way to tamp down rising prices.
Illustration: Carolina Moscoso for Bloomberg Markets
Inflation has been defeated virtually everywhere except at the ballot box. That’s one lesson of a year of hard-fought elections on both sides of the Atlantic. Here’s another: Our standard toolkit for responding to big swings in the prices that matter most to voters, and the economy, needs an overhaul.
In Europe and the US, inflation and the high cost of living have been top concerns for voters who’ve been eager to punish incumbents for letting them happen. No matter that the headline rate of inflation in most countries is now back to normal or that controlling prices is supposed to be the central banks’ job. For politicians at the sharp end of this discontent, it’s tempting to conclude that when it comes to monetary policy, elected governments need more of a say. Why not, if they’re going to be blamed when it goes wrong?