Submitted by 2point6billion.com Blog

An interesting article from the Economist explains and analyses the various reasons behind the runaway inflation in the world. It warns not to repeat the mistakes of the past, while trying to find solutions to the future. Excerpts from the article are below….

EVEN as America’s economy teeters on the brink of recession and many European economies are slowing, central bankers in rich countries fear rising inflation. Yet the risks they face are smaller than those in emerging economies, where inflation has risen far more over the past year to its highest for nine years. There are also an alarming number of similarities between developing economies today and developed economies in the early 1970s, when the Great Inflation took off. Are the young upstarts heading for trouble? 

China’s official rate of consumer-price inflation is at a 12-year high of 8.5 percent, up from 3 percent a year ago. Russia’s has leapt from 8percent to over 14 percent. Most Gulf oil producers also have double-digit rates. India’s wholesale-price inflation rate (the Reserve Bank’s preferred measure) is 7.8 percent, a four-year high. Indonesian inflation, already 9 percent, is likely to reach 12 percent next month, when the government is expected to raise the price of subsidised fuel by 25-30 percent………..

……….The biggest risk from rising inflation lies in emerging economies, not in the developed world. Because food has a much bigger weight in household spending, not only are those economies more prone to a surge in inflation now, but the social and political consequences would also be more severe. This week Jean-Claude Trichet, the ECB’s president, warned central banks around the globe not to repeat the mistakes of the 1970s. Back then, emerging economies played a far smaller role in the world than they do now. To maintain their new-found strength, their policymakers need to keep a firm grip on inflation. The longer it is allowed to climb, the greater the danger to future economic growth.

EVEN as America’s economy teeters on the brink of recession and many European economies are slowing, central bankers in rich countries fear rising inflation. Yet the risks they face are smaller than those in emerging economies, where inflation has risen far more over the past year to its highest for nine years. There are also an alarming number of similarities between developing economies today and developed economies in the early 1970s, when the Great Inflation took off. Are the young upstarts heading for trouble?