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To: UncleBigs who wrote (64618)	6/26/2006 9:33:30 PM
From: andiron	Respond to of 110194

uncle ,wrong and wrong again. --------------------- Central bankers warned on rising inflation By Chris Giles, Economics Editor Published: June 26 2006 20:38 \| Last updated: June 26 2006 21:36 Central banks will have to move faster to raise interest rates because global inflationary pressures are rising and the economy remains vulnerable to a “bang” of market turbulence, the Bank of International Settlements warned on Monday. Raising the spectre of stagflation – the twin perils of slow economic growth alongside higher inflation – the central bankers’ bank highlighted the threats that now exist after global interest rates have been “unusually low for an unusually long time”. Malcolm Knight, BIS general manager, said: “It would be imprudent to count on the happy combination of strong growth and low inflation lasting indefinitely. At some point, central banks may well have to act more forcefully on policy rates than they have needed to do in the past few years”. Its annual report warned the coming year would not be easy for central banks, which would need to act tough to stamp out inflationary pressures but not go too far lest they risk a recession. Central bankers will not be surprised to hear these views, as the BIS has been expressing similar sentiments in private and in working papers for some time. But to include them in its annual report highlights the importance it now attaches to the issue. The US Federal Reserve is expected to raise interest rates by 0.25 percentage points to 5.25 per cent on Thursday. The problem diagnosed by the BIS was that globalisation helped bring inflation down to extremely low levels after the 1980s but ever cheaper imports masked other problems in advanced economies. The BIS worries that central bankers worldwide kept interest rates too low for too long, allowing asset prices to surge and global trade imbalances to reach unprecedented levels. These potential mistakes were compounded by central banks in Asia, particularly China, artificially preventing exchange rates from appreciating. The immediate consequence for advanced economies is rising inflationary pressure now import prices are no longer falling. But the nagging longer term threat is the unwinding of the huge trade imbalances embodied in the US current account deficit and huge surpluses in China, Japan, Germany and oil exporters. The report argued that “inflationary pressures might re-emerge with a vengeance and/or that the unwinding of the financial imbalances could undermine economic activity and contribute to unwelcome disinflation”. It urged members to continue to tighten policy for now. “The current phase of monetary tightening seems clearly justified,” it said, but added that “the issue of how higher rates and financial imbalances might interact needs careful consideration”. The BIS said the global imbalances could resolve themselves, but warned “it is also easy to identify forces that might make various processes of rebalancing less smooth. Some of these could imply the end will be a ‘bang’ of market turbulence, others a ‘whimper’ of slow growth for an extended period.” It said central bankers should take more account of global forces rather than domestic inflationary threats, take greater account of financial imbalances, including rising asset prices, and judge inflationary pressures over a much longer time horizon than the usual two to three years.