At 6.5 , the one year lending rate is now 0.3 above August s headline inflation rate.

The result of this relative price shift is headline inflation.

Yet headline inflation is soaring, and, not surprisingly, gets the headlines.

Headline inflation numbers are the only indication that rising inflation is a problem, or even a reality.

The European Central Bank s response has been analogous to the Fed s, but less forceful, with monetary policy easier than the headline inflation rate would suggest is appropriate.

The 2.6 headline inflation rate in March was heavily influenced by spiking energy prices, the effects of which should be transitory (events in the Middle East permitting).

The European Central Bank s response has been analogous to the Fed s, but less forceful, with monetary policy easier than the headline inflation rate would suggest is appropriate. And in Western Europe, too, GDP is now declining.

September headline inflation, at 2.6 , is above the ECB s 2 target as is the latest forecast for 2006 inflation (updated forecasts will be released at the beginning of December).

A key lesson from the Great Inflation of the 1970 s is that central banks can t afford a false sense of comfort from any dichotomy between headline and core inflation.

Because the inflation rate is also about 2 , this implies a negative real interest rate, which is confirmed by the interest rate of 0.6 on ten year Treasury Inflation Protected Securities (TIPS), which adjust interest and principal payments for inflation.

With inflation both headline and core now on an accelerating path, Asian central banks can t afford to slip further behind the curve.

Given weak demand in slow growing advanced economies, rising commodity prices may lead only to a small first round effect on headline inflation there, with little second round impact on core inflation.

But European inflation is growing at approximately the same rate.

To be sure, all G7 central banks are worried about the temporary rise in headline inflation, and all are threatening to hike interest rates.

The European Central Bank s policy rate stands at 0.75 , while the eurozone s annual inflation rate is 2.5 .

In 2005, GDP increased by 9.9 the inflation rate averaged 9.5 .

Bhutan's inflation rate was estimated at about three percent in 2003.

Further decreases are reported for inflation ( 10,600) and exchange rate ( 37,900).

Global rebalancing is painful for American consumers, and shows itself as higher headline inflation. But to respond by fighting inflation inside the US would be grossly inappropriate both much more painful for US consumers and pointless.

Inflation is always a serious risk in China especially with headline increases in the country s Consumer Price Index surging through the 6 threshold this summer.

A higher rate of expected inflation would also cause the total nominal rate to be greater than 5 .

The PBC should target the renminbi s rate of real appreciation, rather than the inflation rate under a stable renminbi.

The unemployment rate was 4.1 percent in 2010, and inflation was last calculated at 1.2 percent rate in 2003.

Moreover, the US Federal Reserve is targeting a 4 annual inflation rate.

Interest rates were cut by presidential decree to below the inflation rate.

On the contrary, positive expected inflation would reduce the real (inflation adjusted) interest rate not a bad thing under current conditions.

Thus, monetary authorities should simply focus on price stability by targeting the rate of unemployment at which inflation does not increase, referred to as the non accelerating inflation rate of unemployment (NAIRU).

But even more moderate shifts in America s monetary growth rate have translated into corresponding shifts in the rate of inflation.

Given the current expected inflation rate of 2 , the real rate on ten year bonds is still less than 1 .

Likewise, the Bank of England keeps its policy rate at only 0.5 , despite an inflation rate that hovers above 2 .

That expected inflation rate is consistent with the difference in interest rates between ordinary US government bonds and Treasury Inflation Protected Securities.

Inflation did, indeed, come down but the real exchange rate rapidly became overvalued.

Indeed, this indicator paints a somewhat less alarming picture than that created by the headline youth unemployment rate of more than 50 in Spain, or even the 62.5 rate recently reached in Greece.

Benchmark policy rates are currently below headline inflation in India, South Korea, Hong Kong, Singapore, Thailand, and Indonesia. They are only slightly positive in China, Taiwan, and Malaysia.

The second adverse effect of deflation is to raise the real interest rate, that is, the difference between the nominal interest rate and the rate of inflation.

Middle income, low price wage countries would grow faster with a higher inflation rate.

But, with a coming decline in headline inflation and mounting concerns about growth, the PBC is likely to prove a bit more accommodating in the second half of 2011.

Inflation convergence between high headline and low core rates, as well as between high emerging market and low advanced country rates will occur at levels higher than currently anticipated.

In short, there are better ways than gold to hedge inflation risk and exchange rate risk. TIPS, or their equivalent from other governments, provide safe inflation hedges, and explicit currency futures can offset exchange rate risks.

Krueger s analysis indicates that the rate of inflation begins to increase when the short term unemployment rate falls to 4 4.5 . With short term unemployment currently at 4.2 , the inflation rate is indeed rising, and Krueger s research suggests that it will increase further in the months ahead.

Although the United States does not have a formal inflation target, financial markets understand that the Fed aims for an inflation rate close to 2 .

There is no clue, however, about how that anticipated future inflation rate will be determined.

Either choice could mean a higher future rate of inflation, just as financial markets fear.

Today an inflation rate of close to zero is the accepted goal of US policy.

Some argue that China needs to adjust its exchange rate to prevent inflation or bubbles.