I think there are some inflation risks out there. In general, Mexico, say, or Brazil—some of the countries that target inflation—are operating pretty near their target, maybe even a tiny bit above it. One of the pre-August but sort of persistent problems we have been facing for about six to nine months, maybe even for a year, has been to understand food prices. Why does everybody say that our inflation is up but it is food prices? Sometimes it’s hog disease in China, and sometimes it’s an allusion to biofuel issues or other kinds of one-off things that you might see in some emerging-market countries. But the strength of demand in these economies—and Asia is really operating at a very high level of capacity and at a very strong growth rate—raises the potential for upward pressure on prices in some of these countries. Now, China is obviously an outlier in this regard, right? The numbers are crazy; the numbers aren’t trusted. Again, the government says it is food. But if most of the food is domestically produced and food is approximately one-third of the weight in their CPI, maybe that’s where you ought to look. The most important thing you can do with respect to trying to achieve an inflation objective would be to do something about food prices, either by addressing your supply-side policies or by doing something about the rate of money growth or both. So China is a unique case in this regard. I think people are very skeptical about some of the data. People fear that the inflation problem might be even worse. It has always seemed to me that the obvious solution to China’s problem is to let the exchange rate rise. It would solve many, many ills, including lowering food prices and getting the inflation rate down. I don’t hold out much hope for that.
In places where markets are more effective and where monetary policy works in ways that look more like our experience in the service-sector economies, we are probably going to see some monetary tightening continue to be in place. Some of those countries are experiencing a little exchange rate appreciation, and that will help. But I think they are operating with as much inflation as they really want. The industrial countries probably won’t be doing some of the tightening that we had in mind for them and that the markets anticipated, but some of these emerging markets—India, for example—need to continue tightening, and they need to be very alert on their monetary policy. There could be some cases in which their policies aren’t able to do the job or they don’t move quickly enough.