Inflation leads to instability

Last year, many commentators and investors worried about deflation. They were looking the wrong way.

The monetary looseness in China and India combined with the monetary stimulus in the US and UK was pronounced. It has predictably triggered a rather nasty bout of inflation. The Chinese inflation rate is 4.9%, the Indian rate over 8%, the UK rate 5.1% (RPI), and the Brazilian 6%. China has hoisted its interest rates to over 6%, as has India. Brazilian rates are over 11% as the inevitable response to price pressures. This year is the year of rising interest rates, as authorities seek to rein in excesses and put the brakes on price increases. Inflation is especially persistent and hi...