The Bogey of Inflation

LONDON – How real is the danger of inflation for the world economy? Opinion on this matter is divided between conservative economists and official bodies like the IMF and OECD.

The IMF and OECD project very low inflation rates over the next few years. But former US Federal Reserv e Chairman Alan Greenspan warns of inflationary dangers. Some bond markets, too, seem to expect sharply higher inflation.

Which view is right has big implications for policy. If inflation has succeeded recession as today’s main problem, governments should withdraw their stimulus policies (money out of the economy) as soon as possible. If recession remains the problem, the stimulus policies should stay in place, or even be strengthened.

Everyone expects some inflation. During the low-inflation era, which dates from the early 1990’s, developed-country annual inflation rates averaged 2.4%. Central bank inflation targets are now normally set at 2%.