(PROJECT SYNDICATE) - In 2008, as the global financial crisis was ravaging economies everywhere, Queen Elizabeth II, visiting the London School of Economics, famously asked: "Why did nobody see it coming?" The high inflation of 2021 - especially in the United States, where the year-on-year increase in consumer prices reached a four-decade high of 7 per cent in December - should prompt the same question.

Inflation is not nearly as bad as a financial crisis, particularly when price increases coincide with a rapid improvement in the economy. And whereas financial crises may be inherently unpredictable, forecasting inflation is a staple of macroeconomic modelling.