Is inflation the real problem?

J. Bradford DeLonge, professor of economics at the University of California at Berkeley and former deputy chairman of the Federal Reserve, writes in his column about the connection between inflation and the activities of central banks: "If the main problem is a lack of global demand and the world's central banks raise the interest rates this can lead to a recession. If the main problem is inflation and the central banks do not raise the interest rates they can contribute to soaring prices and artificially inflated markets because of inflation expectations. ... The reaction of the European Central Bank was similar to that of the United States, although cautious. ... The inflation rate appears to be slowing. ... In short, the central banks on both sides of the Atlantic are dealing with a financial crisis, but they should not over-regulate. ... By increasing the liquidity of the central banks they prevent a further escalation in the wages-price spiral as a result of the financial crisis. ... Nonetheless, inflation has a harsh face and it is no wonder it is making the headlines."

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