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Coordinating in the Dark on Inflation

The fine-tuned management of surging inflation that is currently being attempted is an area where economics is at its weakest. Better global coordination of monetary policy is essential – and, as the world’s largest economy, the United States will need to assume a disproportionate amount of responsibility for this effort.

ITHACA – Inflation has suddenly become a major problem in virtually all countries. What is unusual this time around is that advanced economies are at the forefront, with annual consumer price inflation currently 8.5% in the United States, 7.5% in the eurozone, and 7% in the United Kingdom. Among emerging markets and developing countries, traditionally more resilient Asian economies also are recording high inflation, with price growth in India, Bangladesh, and South Korea reaching 7%, 6.2%, and 4.1%, respectively, in March.

In a few cases, sky-high inflation has country-specific causes. In Turkey, President Recep Tayyip Erdoğan is trying to run the central bank. In Sri Lanka, utter mismanagement of foreign-exchange reserves and agricultural policy are to blame.

In general, however, inflation is one of the least understood phenomena within economics. We do have enough knowledge to prevent major hyperinflationary episodes of the kind seen in the past, like the record-breaking cases in Germany in 1923 and Hungary in 1946, and in parts of Latin America and Africa in more recent times.

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