In this paper, Charles Bean, Executive Director, Chief Economist and member of the Monetary Policy Committee of the Bank of England, discusses the impact of globalisation on the industrialised countries and in particular the inflation process. He explains how globalisation has affected the returns to labour and capital, and the location of production in the world economy. Globalisation has also influenced relative prices, lowering the prices of imported goods but boosting the prices of oil and other commodities. And it may have changed the inflationary process, flattening the trade-off between domestic activity and inflation through a number of channels. Although globalisation has provided a benign backdrop for monetary policy, it poses a number of challenges going forward: the beneficial tailwind has waned and changes in product and labour markets have altered the determination of prices and wages in ways central bankers do not yet fully understand.