The danger is that expectations might become detached from reality at a time when the economy’s scope for increased output is diminishing because of supply constraints. It has been suggested that higher inflation may be a suitable route to a soft landing and that there may be no need to worry about inflation.
This proposition, which undoubtedly has superficial appeal, overlooks the dynamics of the inflationary spiral that could lead to a very sharp deterioration. It also overlooks the difficulty of regaining competitiveness once it has been lost. It is not so long ago since the wage price spirals of the 1970s and 1980s resulted in high unemployment and emigration.