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Excerpts from the JRL E-Mail Community :: Founded and Edited by David Johnson

What's the fuss about inflation?

Coins, Cash, Line GraphEveryone is in a flap about inflation. But is the problem really that big?

Watching the various crises unfold over the last two years it's clear that the mainstream media is engaged in a ceaseless search for drama; some issue that makes reporting exciting and can be the basis of half-hour specials and big name panel discussions. Some of the headlines are real stories (Lehman brothers, Egypt) that deserve the wall to wall coverage, but most are not.

- - A good example was the possibility of a "double dip" that filled the headlines about this time last year. Famous pundits were hauled in to studios and peppered with questions about "just how close are we to going under again?"

This went on for months, but watching this debate closely, it was clear that the reporters couldn't find **anyone** that actually said they thought a double dip was close, or even likely.

Double dip was not exactly a non-issue, but it didn't deserve the banner treatment it got. But it was dramatic and it **could have** happened so it was a valid question, even if the same answer came over and over again. Bottom line: it was an issue that was blown out of proportion.

The artificial nature of the double dip drama was underlined when the next Big Issue came up - the Greek debt crisis. That was a real story and we all dived in to try and understand it and where it was going - the double dip was dropped like a hot brick, and never came up again.

The mainstream media are loath to just report a story. They latch on to issues and then ham them up. There is no "quiet day" in today's media (annoying for hacks, who have plenty of quiet days, but are still expected to produce).

The Luke Harding story, a British journalist that was briefly barred from entering the country last week, is another example. Russia watchers complained that while nothing he wrote was inaccurate, they strongly objected to his heavy bias towards the negative stories and ignored the bulk of the progress or good news stories.

The Guardian's own handling of the story highlighted the issue, as they splashed his "deportation" across the paper and ran sidebars on other famous people that have been deported. Actually, he was not deported at all, but "refused entry," which is something else entirely. This may seem like parsing diplo-speak, but we are supposed to expect accuracy from our papers first and foremost - and we didn't get it. The Guardian simply put the boot in because they could.

Now everyone is freaking out about inflation. Clearly it is the next Big Theme that will happily occupy the media until the summer, unless Yemen blows up or something. We are about a month into this story, however, like double dip, I already get the feeling that the question about how serious it is has been answered.

True portfolio investors have fled emerging markets and clearly there are a lot of nerves out there. But few of the pundits, and none of the qualified commentators I have heard, have said this is going to be the disaster that is being suggested.

For example, Michael Gavin, managing director and head of emerging markets strategy at Barclays Capital, was interviewed on CNBC this week and said that inflation worries over emerging markets are "cyclical and short-term."

"The inflation concerns are exactly because these are high-growth economies that are reaching the limits of their productive capacity and need to tighten monetary policy that concerns investors. That's a cyclical, short-term tactical influence," Gavin said.

In other words if inflation gets too high then the central banks will tighten interest rates, and inflation will go down. Where is the problem?

Or if underlying this is the fear that tighter rates will cause growth to slow: if growth is at 10% - 12% a year, and slows to, say 8%, is that a really a problem?

This is not to belittle inflation. It is a serious issue and needs to be dealt with. However, having lived in emerging markets for nearly two decades and under double digit inflation for that entire time until 2008, I am struggling to get excited about inflation at 9% in Russia and 4% in China.

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