Global inflation is back after a prolonged period of stable prices, and policy-makers should act aggressively if things start to get out of hand, a top official at the International Monetary Fund (IMF) said on Thursday. Skyrocketing energy and commodity prices have dangerous repercussions for the world economy, said John Lipsky, the fund's first deputy managing director, as oil prices hovered hovered near a record above $123 a barrel. “Signs of more general inflation pressures would justify a decisive policy response, lest the impressive gains in global stability attained in recent years be sacrificed,” he said in a speech at the Council on Foreign Relations in New York. Lipsky said inflation concerns have resurfaced even as global growth slows substantially. “The effects of the slowdown are being felt most keenly in the United States, but growth in all regions of the world is slowing,” he told the audience. The IMF remains optimistic that the world will not experience a return to a 1970s-style inflation spiral, although the risk of such an outcome could not be dismissed, Lipsky said. Not only have energy prices repeatedly probed new highs, but rises in agricultural commodity costs have followed suit, leading to food shortages in some poor countries. These increases reflect in part a rise in demand and therefore are likely to linger for the foreseeable future, Lipsky said. His comments echoed widespread fears in financial markets that softening growth will not be enough to dampen runaway price spikes in key raw materials. Officials at the Federal Reserve and other central banks have also expressed some nervousness over inflation. Despite these concerns, the Fed has slashed interest rates sharply in recent months to combat a housing slump and a related credit crisis. The central bank has lowered its benchmark rate by 3.25 percentage points to 2 percent, its lowest since late 2004. In contrast, the European Central Bank has held borrowing costs steady, exacerbating pressure on the US dollar.
