From deflation to inflation?

The world has recently seen rising prices which are not only a concern for economic stability but also causing deadly riots in North Africa, where Tunisia's Ben Ali was forced into exile after 23 years in dictatorship.

Inflation has been creeping into advanced nations, too. The UK's consumer price index in December increased 3.7% from the previous year, the highest since April 2010. The largest contributor to December's rise was transport which claimed nearly 30% of total increase. Food was the second largest contributor, and restaurants the third.

Likewise, Germany's Harmonised Index of Consumer Prices (HICP) rose 1.9% in December, the biggest since October 2008. About 40% of rise came from energy, which was the largest contributor to nearly two-year high. Traffic and food followed.

Meanwhile, the US is also feeling the rise of inflation, albeit very slowly, even though deflation was perceived as the biggest risk for a little while back. A 1.5% growth of CPI in December is lower than the UK and Germany, but it's the highest in 8 months, nonetheless. Transportation was the largest driver of the increase, beating medical care and food and beverages.

The common factor behind the latest inflation in those three countries is the rise of energy and food price. Transportation is the prime sector that passes through soaring energy costs on fares. Restaurants are also vulnerable to the swing of food prices, and have little choice but to raise retail prices in face of escalating food prices.

The fear of inflation is gradually appearing on a radar screen of European authorities' mind. In the recent interview, ECB President Jean-Claude Trichet brought inflation fighting back to the agenda.

European Central Bank President Jean-Claude Trichet said policy makers are monitoring price developments "very closely" after euro-area inflation breached the ECB's limit in December, Germany's Bild newspaper reported.

"We are always concerned if inflation rises and are following developments very closely," Trichet told the newspaper in an interview. "But the figures for December can be accounted for, above all, by rising energy prices."

Reuters poll indicates that some analysts are anticipating the Bank of England's rate hike in as early as the third quarter of this year, though a majority forecasts a rise in the fourth quarter.

This is all happening when economic activity around the world is still and will be fragile for a while, at least this year. It should be dubious that inflation persists with considerable resources still in slack mode, but the world might have to recall how to tackle and tame stagflation in the 1970's.