IMF alert on inflation

The International Monetary Fund is warning central banks to stay focussed on inflation despite pressure to lower base rates.

In an article that analyses the impact of sub-prime woes on the economy, Dominique Strauss-Kahn, managing director of the IMF, says governments must stay on task if growth is to flourish in the medium term.

He says: “Inflation has risen to its highest levels in more than a decade in developed and emerging countries.

“Fiscal, monetary and exchange rate policies must respond expeditiously to the increasing inflation risks. Failure to do so could undermine medium-term growth and poverty reduction efforts.”

His remarks follow inflationary highs, with the Consumer Price Index reporting inflation at 4.7% – 2.7% off the target set by the Monetary Policy Committee.

The Bank of England refused to comment.

But in a letter to chanmervyn kinginflation still the prioritycellor Alistair Darling, BoE governor Mervyn King says: “Painful experience has shown that if we allow an increase in inflation to become embedded in expectation, a prolonged period of depressed activity and high unemployment is ultimately required to get inflation back down.”