For the past year, policymakers in the high-income countries have been caught in a painful dilemma. Do they focus on the financial crisis or do they concentrate on rising headline inflation? For good or, more probably, ill, the dilemma is on its way to resolution. Contractionary forces are winning. If so, this does at last clarify priorities.

Divergences between headline and “core” inflation (from which energy and food, in particular, have been stripped out) have become remarkably large: in the US, for example, the headline rise in consumer prices was 5.5 per cent in the year to July, against core inflation of 2.5 per cent; in the eurozone, the corresponding figures were 4.1 per cent and 1.7 per cent and in the UK 4.4 per cent and 1.9 per cent.