Out goes the fusty old inflation targeting regime, with its fixation on the consumer price index and disregard for financial sector imbalances.

Inflation has declined to its lowest level in 20 years, with consumer prices rising by 9.7 per cent in 1993.

Looking forward, investors can protect themselves against inflation in the US by buying Treasury Inflation Protected Securities (TIPS), which index interest and principal payments to offset the rise in the consumer price level.

Revised Rates Adjustments of policy 1992 1993

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.

Effects of changes in rates of exchange and inflation

Effect of changes in rates of exchange and inflation

Effects of changes in rates of exchange and inflation

The other broad components of the consumer price index have increased in recent months, and the consumer price index is up about two percentage points over the past 12 months.

And, due to rising consumer prices, the nominal interest rate will continue to rise.

Revised estimates effect of changes in rates of exchange and inflation

Effects of changes in rates of exchange and inflation

d Combined effect of inflation and exchange rate changes.

b Combined effect of inflation and exchange rate changes.

Current inflation is more broad based than it appears, regardless of the controversy surrounding the adequacy of China s CPI basket in reflecting the reality of underlying price movements.

Venezuela has the least expensive petrol in the world because the consumer price of petrol is heavily subsidized.

Additional expenditures deriving from inflation and currency fluctuations

For example, while general inflation (e.g., consumer price index) in the US was less than 5 in the 2003 2007 time period, steel prices increased (escalated) by over 50 because of supply demand imbalance.

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. The government has responded forcefully on four fronts.

A. Effects of changes in the operational rates of exchange and rates of inflation

Faced with high inflation, Thatcher backed a monetarist approach that supported high interest rates and succeeded in sharply reducing inflation.

Mortgages are available at outrageously high interest rates.

In China, food prices account for about a third of the CPI basket, with the price of pork bearing a large weight.

Since September, this new market has traded the Eurozone s Harmonized Index of Consumer Prices, or HICP a contract that traders call the hiccup.

While China s consumer price index rose 5.3 in the year ending in July 2004, this was due primarily to a spike in food prices both before and since, inflation has been negligible.

But it was too little too late. By 1998, when CPI inflation began to fall, producer prices had already been declining for eight months, and remained negative for a total of 51 months, with CPI growth beginning to recover after 39 months.

Given widespread apathy about changes in consumer prices, the modest success of a new market to hedge inflation risk, the European inflation futures market at the Chicago Mercantile Exchange (CME), is noteworthy.

A 10 year inflation protected bond will not only provide interest and principal that keep up with the CPI, but also now pays a real interest rate that is now slightly more than 1 .

As a result, the CPI is jokingly called the pork price index.

During the past five years, the consumer price index has increased at an annual rate of just 1.5 .

The consequences of this are now manifested in property and stock market inflation, but not yet in rampant and uncontrolled consumer price inflation at least for now. But if China does not accelerate the renminbi s revaluation, the world might see a large burst of consumer inflation in China in the next two or three years.

Revised estimates effect of changes in rates of exchange and inflation

As concerns about deflation replaced fear of inflation, gold prices started to fall with the correction in commodity prices.

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

As a result, China s inflation, as well as asset prices, remain under control.

But then the link between the monetary base and the rate of inflation was severed. From 2005 to 2015, the monetary base soared at an annual rate of 17.8 , whereas the CPI increased at an annual rate of just 1.9 .

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

Its nominal interest rates will rise as bondholders fear inflation.

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

Soaring energy prices, for example, have become a leading inflation risk.

It's more expensive to transport goods. Prices of goods go up, inflation is affected.

In short, there are better ways than gold to hedge inflation risk and exchange rate risk.

Higher rates would have meant lower inflation, so that inflationary expectations would not be the issue they have become.

Second, it increases global asset demand, generating asset price inflation.

On January 2, 1992, Moldova introduced a market economy, liberalizing prices, which resulted in rapid inflation.