inflation or recession?

The simultaneity of rapidly rising oil and food prices and a sharp curtailment in financial support for businesses and consumers has inevitably given rise to talk of a return to 1970s stagflation. This is obviously overdone. Inflation in the 3-4 per cent range would have been nirvana back then; today it is seen as a disaster. But for monetary policy, with only one notoriously blunt instrument - interest rates - which can go either up or down, it represents a special challenge. Cut rates too far and you risk inflation accelerating. Push rates up and you risk a slump.

In the past couple of weeks the noise from central banks and markets suggests that the debate has tilted somewhat towards concerns about inflation. That's why investors have been pushing up market interest rates. But there's good reason to think that such a change might be premature.

Artigo de Gerard Baker, hoje no Times