• Financial markets are floating high on optimism. Investors are increasingly betting that inflation, the world economy’s biggest problem, will fall away without much fuss. America’s S&P 500 index has been buoyant this year, European shares even more so, and money has poured into emerging economies. But what if investors are wrong to be so cheery? In our cover story this week, we argue that the battle with inflation is far from over. Six of the big, rich G7 countries enjoy an unemployment rate at or close to the lowest seen this century. It is hard to see how underlying inflation can dissipate while labour markets stay so tight. Many economies are on course for inflation that does not fall below 3-5% or so. That would be less scary than the turbulence of the past two years, but it would be a problem for central bankers, who are judged against their targets. And it would blow a hole in investors’ optimistic vision.

Edited By
Zanny Minton Beddoes
Editor-in-chief