Former treasurer Peter Costello claims that our next big economic challenge will be inflation. I hope he's right. If the global and Australian economies recover more quickly than expected, it is quite possible that inflation will rise. If this does happen, I am confident central banks will be able to reduce inflation quite quickly by reversing some of stimulatory monetary measures that have been employed in the past year or so.
We have had only a few decades of activist central banking and in that time central banks have learned two things: how to create inflation, and how to get rid of it. Inflation is created when too much stimulus is given to the economy, by keeping interest rates too low for too long and printing too muc [Read Full Text]