Put another way, we could follow Barry Ritholtz's lead and dub the surge in crude oil prices the "Trichet Rally."

Readers could be perhaps rightly be accusing me of criticizing the ECB unjustly here. A flip side to this coin would then be to interpret the ECB's move solely in the light of anchoring inflation expectations. In such a minimalist framework - neatly skinned of such "flabby" concepts such as neutral interest rates, output gaps etc - the main thrust would seem to be that inflation is largely a reflection, not of movements in monetary aggregates, but of what people believe it is going to be in the future (but over which horizon?) and of their ability to enforce those expectations on their employers or customers. Whatever the ultimate validity of this point of view, one thing is for sure, and that is that the recent surge in headline inflation has produced a sharp spike in inflation expectations even if investors seem, at the same time, willing to accept the credibility of the Fed's inflation fighting intentions, at least as judged by the yields they are willing to accept on US treasuries.* In this light the ECB is neatly fielding the ball across and into the court of BOE and the Fed by signalling the need for a collective response in providing a credible commitment to flush out global inflation. To add further to their shoulder padding, the ECB recently got some strong indirect support from the BIS's 77th annual report (see also Brad Setser), which elaborated in great detail on their view that it is excess liquidity that is the main source of the global economy's ills.

 
Of course, there can be little doubt that since a significant part of the current inflation spike is global in origin, then a credible response to inflation will entail some kind of global monetary policy response. The ECB cannot fight this one alone and as I have argued over and over again inflation targeting in a world where investors follow yield carries great risks of being counterproductive.

But how likely is it that we will see such a response, and assuming we do, what would it look like? If a significant part of the pressure on global energy and food supply-side resource constraints comes from pressures which ultimately originate in rapid growth in BRIC-like emerging economies how can monetary policy within the OECD help. Doesn't slowing growth further in the developed economies only run the risk of sending even more funds off to the emerging markets in search of yield? And, just how realistic (or fair) is it to ask citizens in what are, after all, largely poor countries, to use monetary policy to restrain their growth simply because our shoes are now starting to pinch.

Clearly, the BOE and the Fed seem, at the present time, to be pretty reluctant to follow the ECB's best foot forward, and while many emerging markets are beginning to tighten the reigns the USD pegs remain and so does Japan's near ZIRP interest rate policy. And of course even further monetary tightening in those emerging economies which are feeling the full force of the inflation pressure can have rather perverse effects, as, for example, in China, where reserves seem to have jumped by around $75bn in April and $40bn in May (to a total which is now reckoned to run at something over $1,800bn) on the back of expectations for further rate rises and currency appreciation.

Another point worth making here would be that, while I fundamentally agree with the BIS that something needs to be done to rein in global inflation, the risk of provoking outright deflation in some key low growth OECD economies is non-negligible should the slowdown be too sharp . The key here is the link between the idiosyncrasies of national demographics, internal consumer demand and thus the differential abilities to pull the local economy out of any trough it may fall into. We should remember that the world is ageing and in some corners with an unprecedented speed.