The yen s weakening will mean higher import costs, and therefore a higher rate of inflation.

History shows that rising inflation is eventually followed by higher nominal interest rates.

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

Those experiencing rising and now double digit inflation will have to raise interest rates, while other high inflation countries will lose export competitiveness.

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

T hat has to subtract growth and could cause core inflation to pick up.

Failure to address these important problems risks a continuing high rate of inflation, now running in excess of 20 per year one of the highest annual rates in the world, and well above the rate at which the Argentine peso is depreciating.

But inflation remains high or rising, so more tightening is imposed.

The result of this relative price shift is headline inflation.

From a macroeconomic perspective, China s current inflation is attributable both to demand pull and cost push factors.

In addition, a fall in the dollar could also push up inflation in the United States, leading to higher American and global interest rates.

Indeed, the government s key economic committee, the Central Work Committee, has concluded that after years of high growth and low inflation, China is on a route to high growth with high inflation.

The interference of cost push factors contributed to the unexpected persistence of inflation.

The embargo drove up prices and unleashed a period of inflation and stagnation worldwide.

Barring unexpected shocks, I believe that China s inflation may peak soon. From a macroeconomic perspective, China s current inflation is attributable both to demand pull and cost push factors.

Inflation was on the rise before the recession of 2008 struck, mainly because of spiking commodity prices.

Nominal wages may increase, while real wages stagnate, owing to higher inflation.

The year began with rising food, oil, and commodity prices, giving rise to the specter of high inflation.

With the Fed underscoring its strong anti inflation bias, it is harder to argue that investors need gold as a hedge against high inflation.

Record high food and energy prices, combined with sharply rising wages in China, are pushing up inflation in much of the world.

And the reduction in real interest rates via a rise in expected inflation when open ended QE is implemented risks eventually stoking inflation expectations.

Ordinarily, a sharp rise in oil prices quickly translates into higher inflation expectations, followed by rising interest rates at all maturities.

Central banks respond to lowered demand by reducing interest rates and to higher expected inflation by raising interest rates.

Already large disparities in income and wealth will continue to deepen, amplified by higher inflation and financial repression.

This means that the dollar s 5 fall so far this year will add only half a percentage point to the inflation rate.

Even for distressed households that have borrowed long term, the effects of higher inflation are uncertain.

Growth momentum has fizzled and, with inflation persistently high, Indian producers are struggling to compete in world markets.

Inflation implies higher long term interest rates until markets regain confidence in the central bank.

But they too easily forget the costs of high inflation, and how difficult it is to squeeze it out of the system.

The unusual nature of current unemployment increases the risk of future inflation still further.

Recent inflation in many countries has been the result of higher commodity prices, especially fuel and food prices.

Even so, the fact that very high inflation is possible does not make it probable, so one should be cautious in arguing that higher gold prices are being driven by inflation expectations.

If a government attempts to push the unemployment rate too low, inflation will increase, and so, too, will inflationary expectations.

Indeed, ECB officials are starting to worry aloud about the rise in inflation due to the oil shock.

Given all this, more deficit spending will only stoke fears of higher future taxes and inflation.

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.

A more flexible currency is especially important now, when inflation risks are rising in China.

Some policymakers have concluded from Phelps analysis that the unemployment rate cannot be lowered permanently without ever increasing levels of inflation.

China, for example, is worried that the Fed s stimulus will increase its domestic inflation.

Chinese authorities are so worried by their country s 7 inflation they are copying India and imposing price controls on food.

Over the past 25 years in Europe, unemployment rose as monetary policy was tightened and interest rates were raised to fight inflation.

That outcome is more likely if high rates of long term unemployment and underemployment persist even as the inflation rate rises.

The Swiss central bank recently adopted this position, and the ECB is worrying about higher inflation, not deflation, in the eurozone.

Even without the prospect of faster inflation and a declining yen, fundamental conditions in Japan point to higher interest rates.

We are making every effort to control inflation, because we know that high oil prices have a negative impact on economic growth and poverty reduction.