Accelerating inflation worldwide and economic stagnation in many rich countries make central bankers’ jobs impossible. It’s their own fault. Real interest rates are mostly negative, while many countries are dealing with collapsing asset bubbles. Sorting this out will take years.

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The US consumer price index, or CPI, increased 0.3%. It is only 2.5% above its level of July 2007, but has increased at a 3.5% rate in the past three months.

The US CPI for all urban consumers increased by 0.5% on an unadjusted basis, or 0.8% on a seasonally adjusted basis in July, which is 5.6% above that of July 2007. The food index increased 0.9% in July and the energy index increased 4.0%

The British CPI in July was 4.4% above its July 2007 level. The euro zone CPI was 4% above its July 2007 level while Japan’s CPI in June was 2% above its June 2007 level.

Euro zone real gross domestic product (GDP) fell by 0.2% in the second quarter of 2008 and Japanese real GDP fell by 0.6%. US import prices rose by 1.7% in July. They were 21.6% above the July 2007 level. Non-petroleum import prices in July were 8.0% above their July 2007 level.

Central bankers worldwide are impaled on the horns of a dilemma: whether to lower interest rates to stimulate demand or to raise them to fight inflation. British and euro zone central bankers have leaned relatively towards fighting inflation while US and Japanese central bankers are more concerned with staving off recession.

That might suggest that interest rates were close to equilibrium—but they’re not. In real terms, compared with past 12-month inflation, the European Central Bank’s base rate is 0.25%, the Bank of England’s minus 0.3%, the Bank of Japan’s minus 1.5% and the US Fed’s minus 3.6%. Monetary growth rates have mostly been rapid, as central banks worked to stem banking crises. A monetary policy whose effect on inflation was neutral would have real interest rates around 2-3%; thus policy worldwide remains exceptionally stimulative.

Nevertheless, the economic sluggishness is genuine. US growth prospects are weak, following the exhaustion in July of fiscal stimulus payments. Euro zone and Japanese GDP declined in the second quarter while Britain’s grew at only 0.2%. The collapse of global housing acts as a drag on growth, even in Germany and Japan, whose housing bubbles came a decade ago.

Central banks usually resolve their dilemma by claiming that inflation is about to abate. The recent declines in oil and commodity prices from their highs may temporarily produce such an effect.

However, with money still loose, there is no guarantee that today’s oil and commodity prices will stick to their present levels. Furthermore, higher inflation appears to have entrenched itself into most economies, with non-oil inflation on a pronounced upward trend.

Eventually, stabilisation in house prices and continued inflation will cause central banks to reverse course and raise rates to a restrictive level of 4-5% above inflation. It will cause a second-dip economic downturn. Either way, the path to stable growth without excessive inflation is a long one. For a few years, being a central banker is an unenviable task.