Central banks have spent down their credibility

Not long ago the rich world was braced for a costly battle with inflation. Today it can seem as if the war has been won bloodlessly. In most rich countries annual core inflation, which excludes volatile food and energy prices, has fallen from peaks of 5-8% to a more tolerable 3-5%. In defiance of pessimistic economists, there has been no accompanying economic slump. Growth varies from booming (America) to respectable (Australia, Canada, Japan) to tepid (Britain, the euro area), but nowhere has it collapsed. In contrast to the disinflation of the 1980s, unemployment has stayed low. Has the world economy enjoyed salvation without sacrifice? Sadly, the answer is no; high inflation has left scars.