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Will higher inflation force central banks to raise rates?

We think a sustained period of inflation in the region of 3-4% over the coming years could be dealt with relatively easily by central banks. But if inflation were to rise much further than this, policymakers would have to raise rates more aggressively and for longer. The subsequent economic damage wouldn’t be as large as that seen in the 1980s or the Global Financial Crisis, but a global recession and the bursting of housing bubbles in some advanced economies would be difficult to avoid.

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