The inflation complication

But news from an international meeting in Basel, Switzerland, has left us wondering exactly what Thailand's inflation outlook really is. The world's top forum for central banking, the Bank for International Settlements (BIS), warns that the recent sharp rise in inflation could continue into next year.

An Agence France-Presse report quotes BIS general manager Malcolm Knight as warning that central banks must continue monitoring inflation "very closely" and urging those countries still experiencing strong demand to use interest-rate hikes and currency appreciation as tools to hold down inflation.

Speaking at the annual BIS meeting, Knight argued it would be "imprudent" for central bankers to give in to fears of a slowing economy instead of addressing inflation through interest-rate hikes.

He said that in particular, emerging market nations should shoulder "new international responsibilities", given their growing economic clout.

"At present, most forecasters think that the recent rise in headline inflation in industrial countries represents a temporary blip and that based on current expectations of how monetary policy will react, inflation will fall back in 2009. But we cannot be entirely confident about this reassuring assessment," Knight said.

In recent months, a surge in energy and food prices has driven inflation sharply higher in much of the world.

Central bankers typically raise interest rates when inflation is high, hoping to contain rising prices. But faced with the threat of a slowing economy arising from a financial-market crisis, central bankers have been caught in a dilemma over decisions on interest rates. While they should raise rates to hold down inflation, the prospect of slowing economic momentum prompts some central bankers to stay their hand on higher interest rates.

He acknowledged the current situation posed a "complication". He pointed to emerging markets, stressing that in countries where demand was still strong, it "would seem appropriate to raise rates and allow the exchange rate to appreciate, in order to contain inflation".

"The growing economic weight of emerging-market countries clearly has advantages, but it also creates new international responsibilities," he said. Without naming specific nations, he welcomed moves by some "important emerging economies" that had come to "accept the need for currency appreciation".

The "complication" mentioned by Knight is part of the Thai economic environment.