There can be little dispute with Ben Bernanke's observation on Monday that the US economy is "entering a period of transition". Understandably, though, the markets alighted on the least ambivalent portion of the Fed chairman's remarks that inflation was "at, or above, the upper end" of what most economists view as consistent with price stability. As a result, the futures market is now forecasting another quarter point rise at the Fed's next meeting in late June.

But things are not necessarily that simple. Recent US data pose a particular challenge because they are pulling in opposite directions. As Mr Bernanke observed, core inflation - excluding food and energy - has risen to 3.2 per cent in the past three months, up from a 2.8 per cent six-month average. Some of this can be attributed to the feed through of higher oil and other commodity prices into retail costs. But it could also signify inflationary pressures resulting from a rise in US capacity utilisation.