Global inflation prints are recording levels not seen in 40 years, and inflation expectations are rising. If policymakers rely solely on higher interest rates to bring inflation back into the target band, the economics tell us it will require a sizeable reduction in aggregate demand, and equity markets are in for more pain.

Economists are forever trying to understand the economy with intricate models. But economies are complex, and it is fair to say that the very brightest minds and best models have been puzzled by the lack of inflation over the past decade and totally blindsided by the sudden rise in prices since the start of 2021.