Central banks’ near universal success in bringing down inflation over the past two decades has led many policymakers to conclude that they have pretty much solved the problem of high inflation, once and for all. Market participants have bought into this story, as evinced by a host of quantitative and survey measures. Outside a few developing countries, nobody seems to worry much about a sustained bout of 5 per cent or 6 per cent inflation, much less the double-digit levels of the 1970s. But have central bankers truly slain the hydra of inflation?

The advent of modern independent and anti-inflation-oriented central banks is one of the great success stories of modern economic science. But this story has been exaggerated. We should consider the possibility that the unprecedented pace of modern globalisation, recently emphasised by Ben Bernanke, the Federal Reserve chairman, might also have played a role. If so, what will happen if the winds of globalisation ever reverse course?