Global inflation is now a spectre that haunts us all. Oil has been its main symbol, even though it traded relatively low at $137 a barrel on Wednesday.
That makes inflation control an important macroeconomic challenge the world over. In the US, for the first time, Federal Reserve chairman Ben Bernanke's decision to keep interest rates steady last week underscores a rising concern for inflation instead of recession.
Oil prices are at a historical high in real terms, and food prices have been high enough to cause social unrest in many parts of the world.
But the pain is not being felt uniformly. Clearly, the nature and level of shocks are different in every country.
China's official rate of consumer price inflation is at a 12-year high of 9 per cent, up from 3 per cent a year ago. Russia's has leapt from 8 per cent to over 14 per cent.
Most Gulf oil producers also have double-digit rates. In India, the wholesale price inflation rate (the Reserve Bank's preferred measure) is 11.63 per cent, a 13-year high.
Inflation in Latin America remains low relative to its past. But Venezuela and Argentina are worst hit with inflation at 29.3 per cent and 23 per cent, respectively.
Shouldn't there be a global response to a problem with a global dimension? Some economists feel that we should start thinking about a global inflation target, even though it may not be a strict numerical target. But bringing all central banks together on this may be impracticable. Most central banks have responded by tightening monetary policy.
The European Central Bank may join the battle by raising interest rates. Sweden and Indonesia may do the same. Even the US Federal Reserve has been forced to consider tighter policy. All said and done, a one-size-fits-all solution for all countries may not be possible. Inflation in India is part of the larger global phenomenon.
That doesn't mean the government shouldn't fight inflation on an urgent basis, using monetary tools and fiscal prudence which the finance ministry and the Reserve Bank are doing. But such measures take time to bear fruit.
It's futile to presume, as some political rhetoric on inflation does, that India can be disconnected from global trends. Inflation is here to stay for a while, unless global oil prices suddenly start tumbling.
source: The Pain is GlobalTimes of India, India