Why Central Banks Keep Misjudging Inflation.

Quite apart from the debatable link between unemployment and inflation, a recurrent
feature of business cycles is that the labor market lags behind demand and output, and
demand and output, in turn, lag behind asset markets and developments in the banking
system. Particularly important, in my view, are developments in the banking system that
affect the rate of growth of the quantity of money, broadly defined. If central banks insist
on putting the labor market at the heart of inflation forecasting, they will be caught out
time and again. The lags are so short that they will have to forecast the unforeseeable.