The central bank game of chicken with commodity prices

Just hours before Bernanke is scheduled to speak, ECB Pres Trichet is acknowledging the risk of rising inflation pressures because of rising commodity prices but he still believes that “inflation expectations remain firmly anchored” and the current level of interest rates “still remain appropriate.” He is though playing the part of an attentive central banker by saying while “inflation risks are broadly balanced,” they could move to the upside. He seems to believe (hope) that the rise in commodity prices is temporary as he expects inflation to moderate toward the end of the year but they will remain “alert” on inflation. Bottom line, the ECB, BoE and especially the Fed are all playing a dangerous game of chicken with commodity prices because of their reluctance to wean the patient off the drug of cheap money.

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