The return of inflation is not just an important economic event. It is also a political one. As it becomes decreasingly plausible that it will simply fade painlessly away, tough decisions must be made on how to react to it.

This raises big issues. How did we get here? How large and durable a slowdown will be needed to bring inflation back under control? Is policy tight enough already? If not, what further steps might need to be taken? Not least, should inflation be brought down to previous targets or should policymakers give up and raise their targets instead?

The latest Annual Report of the Bank for International Settlements provides an excellent analysis of what is happening. More important, it illuminates the dangers in shifting away from the regime of low inflation of the past 40 years.