Inflationary Woes

U.S. Treasury Secretary Henry Paulson stated today that inflation has become the principal concern of countries around the globe, especially in relation to high oil and food prices. He noted, for example, that inflation in Russia had reached a 15 percent annual rate recently.

How countries are acting to curb inflation, however, is not uniform. Inflationary pressure in Europe caused the European Central Bank to raise interest rates in the eurozone for the first time in more than a year, according to the Financial Times. The main interest rate was increased to 4.25 percent, up a quarter of a point from where it had been since June of last year. The boost came in response to inflation in the eurozone reaching four percent, the highest rate since the introduction of the euro in 1999. The Riksbank in Sweden (which is not included in the eurozone) followed suit by raising its interest rate to 4.5 percent.

China, on the other hand, has been disinclined to raise interest rates, concerned that increasing interest rates will attract even more speculative capital, inflows of which have been disrupting the country’s efforts to control inflationary pressure. Instead, the State Administration of Foreign Exchange—China’s foreign exchange regulator—announced the implementation of a new capital control scheme that will require exporters to hold revenues in special accounts while regulators confirm that the revenues are the consequence of legitimate trade. The new system, the Financial Times claims, could impose quite a burden on exporting businesses.

For even more startling numbers, take a look at International Political Economy Zone’s coverage of inflation in Zimbabwe.