Inflation is the biggest test yet for independence of central banks

Today's inflation is due primarily to the disruption the pandemic has caused to key global supply chains

Central banks are being tested by the recent resurgence in inflation, with the US recently reporting an annual rate of inflation of 6.8%, the highest in nearly 40 years. The question they are all asking is whether this inflation is temporary (“transitory”) or persistent.

If it is only transitory, it would be counterproductive to deal with it aggressively. If central banks tighten monetary policy unnecessarily by sharply raising short-term interest rates or quickly unwinding those government asset purchases (known as quantitative easing or QE) which supported many economies during the COVID economic shock, it will needlessly push back