Global inflation is a “clear and present threat” to a world economy that needs higher interest rates and a new framework to deal with future credit and asset bubbles, the Bank for International Settlements said on Monday.

In a hard-hitting annual report the organisation, which oversees central banks and banking regulators, warned that the current financial market turmoil still threatened a severe slowdown as banks and individuals struggled to reduce debts. The interaction between rising inflation and the credit crisis “does appear to point to a deeper and more protracted global downturn than the consensus view seems to expect”, the report argued.