Inflation escalation; policy recalibration Central banks around the world now have a serious fight on their hands. Inflation in most places has been far too high for far too long. Worse still, it continues to rise. The major central banks have ratcheted up their response, but far too late in the view of many. However, it’s been unexpectedly abrupt for financial markets. They are troubled not just by the aggression of the Fed’s 75bps hike at the June meeting and a clear signal from the ECB that it could soon be lifting the policy rate in at least 50bps steps, but also by the huge uncertainty over just how much interest rates may have to rise if inflation is to be tamed. Even more importantly, markets are trying to assess just how painful the consequences of that tightening might be.