Why risk a soft on inflation label? Sarkozy might even tone down his attacks on the ECB, whose single minded, inflation fighting policies have made it one of his favorite targets.

Falling oil prices and the prospect of a prolonged period of low inflation also seem to have affected inflation expectations. Given the potency of the recent oil price shock, the risk is that inflation may temporarily slip into negative territory in the coming months.

Rising inflation is certainly not inevitable, but, in both the US and Europe, it has become a risk to be reckoned with.

So, with no near term risk of inflation or depression, why have gold prices started to rise sharply again in the last few months?

Some central banks began to raise interest rates pre emptively, albeit in small steps to counter the risk of potentially higher inflation in 2005, signalling the end of the low inflation, low interest rate environment of the last two years.

Inflation.

Gold prices rise sharply only in two situations when inflation is high and rising, gold becomes a hedge against inflation and when there is a risk of a near depression and investors fear for the security of their bank deposits, gold becomes a safe haven.

Forget Inflation

Inflation adjustment

The fact that such purchases are potentially unlimited would exacerbate the problem of moral hazard. It would also increase the risk of inflation, along with other negative economic consequences.

To believe that any country issuing debt in its own currency is risk free as long as the exchange rate is flexible is astonishingly naive. For one thing, there is still inflation risk, particularly for countries with weak fiscal institutions and heavy debt burdens.

The second risk is that, even based on current growth expectations, investors may have gotten ahead of themselves in anticipating monetary policy tightening. The Fed will raise interest rates when it senses that the economy is nearing full capacity and that inflation wage inflation, in particular is accelerating.

Until now, most investors have thought that they would rather risk high inflation for a couple of years than accept even a short and shallow recession. But they too easily forget the costs of high inflation, and how difficult it is to squeeze it out of the system.

Beyond Inflation Targets

The Inflation Puzzle

Rethinking Inflation Targeting

Inflation or Deflation?

Is Inflation Returning?

Russia s Eternal Inflation

The BOJ would be right to worry, of course, if interest rates were rising because of a growing risk premium, rather than because of higher inflation expectations. The risk premium could rise, for example, if investors became uncertain about whether Kuroda would adhere to his commitment.

I am not arguing that inflation will return anytime soon in safe haven economies such as the US or Japan. Though US labor markets are tightening, and the new Fed chair has emphatically emphasized the importance of maximum employment, there is still little risk of high inflation in the near future.

Farewell to Inflation Targeting?

China s New Inflation Constraint

An Inflation Reality Check

Inflation Comes to China

Is Inflation the Answer?

When Inflation Doves Cry

Inflation is going down.

D. Inflation (decrease 11,687,000)

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.

Japan is still stagnating. Not inflation, but a Japanese type period of deflationary pressure with ever increasing public debt is the real risk that the world will be facing for years to come.

In fact, both the critics fears and the optimists euphoria are unwarranted. With so much underutilized productive capacity today, and with immediate economic prospects so dismal, the risk of serious inflation is minimal.

And inflation has come down.

The Exaggerated Death of Inflation

The Inflation of Hugo Chávez

The Failure of Inflation Targeting

The Ghost of Inflation Future

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

It will reinforce convergence expectations among financial market participants, which will translate into lower risk premia for investors. Lower risk also will bring inflation expectations down and reduce interest rates, which will in turn speed up the compression of Polish government bond yields to comparable EU levels, increasing financial stability.

If food inflation recedes further, and the headline inflation rate starts to converge on the 3 core (non food) rate, the result will be the equivalent of passive monetary tightening in real (inflation adjusted) terms precisely what the inflation prone Chinese economy needs.

Moreover, low interest rate policies transfer inflation risk to all savers and to future generations. Perhaps the greatest insult to taxpayers, then, is that bankers compensation last year was back at its pre crisis level.

Second, gold performs best when there is a risk of high inflation, as its popularity as a store of value increases. But, despite very aggressive monetary policy by many central banks successive rounds of quantitative easing have doubled, or even tripled, the money supply in most advanced economies global inflation is actually low and falling further.

For example, a central bank might announce that circumstances during, say, the next two years warrant a doubling of the inflation target from the usual that is, almost never varied annual rate of 2 . Such an approach would reduce the risk of debt deflation, while capping inflation expectations to prevent a damaging surge in prices as recovery takes hold.

It's a process of academic inflation.

Inflation is Now the Lesser Evil