Are we heading back to the 1970s?

Stock markets may be up, but that doesn't mean it's business as usual. Inflation is getting out of hand and policymakers don't seem to have learnt from past events, which is bad news for stocks.

As far as stocks are concerned, all is well with the world. American, British and European indices have risen to four-month highs. The message seems to be that the credit-crunch-induced slowdown will be "short and not especially sharp, but enough to knock all these silly inflation stories on the head and we can look forward to a resumption of business as usual", says Jim Wood-Smith of Williams de Broe.

But business as usual is about the last thing we're likely to get. For starters, expect plenty more stories about rising prices. Following April's sharp jump in UK inflation, the market's inflation expectations measured by the gap between the yields on index-linked and conventional gilts have jumped to a ten-year high.

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