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Comment Tell A Friend Print Format Save Article Global inflation has stealthily climbed to historic levels, as the world frets about a possible US recession.



Amid ongoing solid growth in the global economy for five consecutive years, few regions have not felt the sting of higher prices in everything from cooking oil and gasoline to education and health care.



Inflation is at a 16-year high in Saudi Arabia, a 14-year high in Switzerland, a 25-year high in Singapore, and consumer inflation remains at a nearly 11-year high in China. The list goes on.



Euro-zone inflation may be more robust than the European Central Bank (ECB) expected, with inflation at a 14-year high; and the economy has shown signs of slowing. Many fear it that will get worse if the U.S falls into recession.



Additionally, overshadowed by inflation, the ECB's ability to go along with the US Federal Reserve (Fed) and aggressively slash interest rates is limited.



"In previous booms, we've had inflation that caused central banks to tighten and brought growth to a halt," said Gabriel Stein, an economist with Lombard Street Research in London. "This time, we have a different weakness that prevents central banks from tightening in some areas, so there is a risk of embedding inflation expectations."



The Fed, for example, is set to keep a lid on inflation expectations as they can influence how people behave in the marketplace, and in turn, impact future inflation.



However, the Fed has slashed benchmark interest rates by 2.25 percentage points since mid-September, despite signs of elevated inflation, in an effort to keep the economy from tipping into recession.



Concerns about inflation not only hover over the Atlantic, and sweep Australia; but also move eastward to Asia.



Australia's central bank on Monday bluntly stated they would need to raise interest rates to contain inflation, even though it lowered its outlook for economic growth.



A conventional analysis concludes that countries with relatively weak currencies will have an easier time battling inflation in 2008 – provided growth remains stable – since there is more room for growth.



Asia may be in a better position to face inflation, as central banks can allow their currencies to rise and counter price pressures, making them attractive to investors.



Goldman Sachs, a US investment bank, recently reported that the yuan's appreciation is the best, most practical way to tame inflation and avoid an economically "hard landing."



The report also noted that high inflation adds pressure to the rapidly appreciating yuan, which has revaluated more than 2.2 percent against the US dollar so far, after climbing 6.9 percent against the greenback in 2007.



Analysts believed the PBOC would allow faster appreciation of the yuan in an attempt to curb rising inflation.



Goldman Sachs lifted China's forecasted inflation from 4.5 percent to 6.8 percent, in light of the rapid growth in the monetary supply.



The consumer price index (CPI), the main gauge of inflation, reached an 11-year monthly high with a 7.1 percent rise in January. Huge increases in food prices pushed the CPI up by 4.8 percent in 2007 to its highest level since 1997, according to the report.



However, economic analysts expected that "stagflation" in the US economy, caused by the subprime crisis and the declining dollar, would have a limited impact on China. In addition, facing stagflation, the US would not allow a further decline in the dollar; and that would reduce the appreciation pressure on the Chinese yuan against the greenback and the euro.



Yi Gang, the vice governor of the People's Bank of China (PBOC), told a seminar in Beijing on Sunday that the primary risk to China's economy was inflation and the government would stick to a tight monetary policy.



Evidently, global inflation is looming large and will change economic trends in 2008. Different nations need to respond appropriately and on the basis of de facto conditions.



By People's Daily Online