Inflation, inflation, everywhere

Right, i havent really been paying that much attention to the news in the last week or so as i've had my head buried in the school books. However, today i decided to read last weeks edition of "The Economist" and also checked out the economy section of the BBC website. What i've found is that across the world there appears to be rising inflation, on the BBC website there are current articles which suggest that inflation in the UK, China and India is well above the desired targets and this is very worrying. CPI  inflation in the UK has held steady at 4.5%, well above the 2% target whilst inflation in China is at a 34 month high of 5.5% and India at 9.06%. "The Economist" hints that inflation in Brazil is now rising too fast and has now reached the level of 6.5%.

The reasons for the rising inflation seem to be similar throughout the world, rising fuel and food prices and it makes sense as well. With increased trade due to globalisation, rising production costs in one country are quickly going to be passed on to other countries. What's worrying however is that monetary policy, the main instruments which aim to control inflation are seemingly having little impact. The article in "The Economist" went into a little more depth than A level economics prepares you for but i got the gist that monetary policy wasnt working. The Chinese central bank has risen interest rates four times since october to rein in inflation and obviously it has been unsuccessful.

The question now is what can governments do? Apparently the Brazilian government should implement a tighter fiscal policy (again it was explained a little more complicatedly than that) but will that really reduce cost-push inflation. I doubt it but maybe that is not the aim. The impact of rising, unexpected inflation is quite worrying. This will force workers to demand real wage increases to counter any future rises in inflation. This could lead to unemployment rising as firms shed workers to keep costs low which would in turn lead to a worsening budget deficit as tax revenue would fall and more people would be claiming unemployment benefits. Could the governments try to improve the flexibility and efficiency of the labour markets to try and reduce inflationary pressures. The public sector pay freeze will be putting a squeeze on alot of families which should, in theory reduce demand pull inflationary pressures.

I'm not sure what the answer is, but feel that something needs to be done quickly, otherwise this could spell doom. Surely, Mervyn King must be contemplating an increase in the bank rate soon?