A sign that the economic winds are due a change is often when a topic is most talked about. Might the fact that inflation is the word on everyone’s lips, then, serve as a signal that it will soon pass? Anxious inflationistas fill the financial press with worries, causing heartburn over breakfast. Still, while this exposes deep concerns, it reminds us that the topic has not gone unrecognised.  Officials maintain that inflation is transitory. The Fed is talking about tapering as soon as November, and an ever-growing group of experts expect rate rises next year.

Perhaps this is the wrong question though. Whether inflation is transitory or not, it will erode purchasing power in the next few quarters. If wages match inflation expectations, then it is more likely to hang around. If they don’t, however, then workers become worse off; potentially more so if governments look to increase their tax-take in the new year. Inflation is driven by bottlenecks and pent up consumer demand from the pandemic, but non-insignificant amounts are turning up in essentials – things like energy and food – hitting the poorest hardest.

This is a recipe for social unrest, especially in emerging markets, where food prices are surging to levels not seen for a decade.  Food and energy measures might be excluded from core inflation due to their instability, but they are core items in day-to-day expenditure, especially for people on low incomes.  These people generally have less invested in the system, so less to lose from demanding wholesale reforms: it’s no coincidence that food prices rose quickly in the run up to the Arab Spring. This time won’t necessarily end that way, nor will it impact all countries equally. Yet governments are dealing with finer margins than they have in a while, between killing a nascent recovery and holding down inflation. Opinion could move extremely quickly if they get it wrong.