The US consumer price index increased 9.1% from a year ago in June, above the 8.8% Dow Jones estimate, although FED had many rate hikes.

The question for investors is whether such criticism will lead to any change in central bank behaviour or, perhaps more worryingly, any change to central bank mandates and independence. Right now, it seems that such threats could be the most acute in the UK, with a possible cost to the pound.

There are a number of arguments for why central banks might have allowed inflation to get out of hand. One is that the supply shocks of COVID-19 and the conflict in Ukraine were simply so big that they overwhelmed central banks. Another is that central banks contributed to their own "downfall" by believing the hype that they had inflation expectations anchored around a target. A third claim is that some central banks harmed their anti-inflationary capabilities by changing their monetary policy strategy.

The two that spring to mind here are the Fed and the ECB. On the face of it, there seems a reasonable case to be made for the fact that all of these could have had a role. Even before COVID-19, structural factors such as deglobalisation and the sharp increase in the dependency ratio (the number of elderly compared to working-age members of the population) in advanced economies would likely raise inflation over time.

But do these sorts of things answer all the questions about what has happened to inflation in recent years? Possibly not. For instance, how do these arguments explain the fact that inflation in Japan has stayed very low, at around 2%? And how do they explain the fact that most of the sharp increases in inflation have come in large, advanced countries, while many emerging market countries have seen more modest increases. For instance, annual CPI inflation in South Africa is 2.8% points above its pre-Covid (Feb 2020) level, while the rise in the US has been 9.1% points and 7.7% points for the euro zone. Could there be something else that explains these discrepancies?

Mr. Steve Barrow, Head of Standard Bank G10 Strategy, said this would be the point at which the critics of the central banks seem to be stepping in, because many put the blame full-square on monetary largesse both before COVID-19, even going right back to the 2008 global financial crisis, and after COVID-19. In short, those who argued that zero rates and quantitative easing were storing up a surge in inflation now feel that their concerns have been validated. Could there be some truth in this? It could explain some of the Japanese low inflation story, as the broad (M3) measure of money supply in Japan has only increased by around 60% since 2010, whereas it has more than tripled in the eurozone and more than quadrupled in the US and UK. The same argument might explain why those emerging market countries that have not been able to slash policy rates and/or conduct massive QE have seen a relatively better inflation performance than advanced nations.

In the end, we clearly can’t be sure what’s to blame. But that’s not stopped leading UK PM candidate Liz Truss from pointing the finger at the BoE’s monetary largesse. She has said that she will order a review of the BoE’s policy framework; something that she says has not been done since independence was granted in 1997 (although that’s not strictly true as some minor tweaks have been made subsequently). But does this suggest that any review might push the Bank towards a tighter policy than it might otherwise follow? It might, although Truss’s claim that she will also set a growth target of 2.5% per year if elected as PM rather clouds the picture, even if the growth target is not foisted on the BoE.

Mr. Steve Barrow believes that such confused thinking risks becoming endemic and, in his book, that’s not good for confidence in policymakers or in the asset prices that those policymakers can influence – such as the pound.