Buiter's ideas may work in Germany where there is a low level of home ownership but in the UK high interest rates would cause massive numbers of repossessions for all those already close to the margin. Everybody's dead but the economy is doing fine? Hurting doesnt mean working.

Bob T, London, UK

What a pity Mr Buiter is not Governor of the BoE ! I agree with his assessment wholeheartedly. The problem is the BoE is NOT independant from the Government as many people suppose. Darling will use his influence on the Governor. Small comfort the US is in a much worse state than us due to low rates

Pedro Tam, London, UK

Mr Kemmish
Nice to see an intelligent piece of commentary. Perhaps he is referring to the effect of bubbles in commodity prices leading to increased speculative demand?We have seen increasing demand for energy since prices begun their climb, though I surmise this is rather due to demographic trends

S Lehnis, London,

Inflation is always and everywhere a monetary phenomenon. Fiat currency NEVER holds its value. Commodities are rising as they are becoming the de facto currency of choice. If you want to maintain purchasing power you have to put your money into tangibles. The commodity of choice is oil.

j barrows, newcastle,

Buiter makes the timely point that inflation is a bad thing that needs to be eliminated quickly. Sadly most people seem to have forgotten, or for many were not around to learn, the lessons of the last inflationary period. Inflation makes it easy for people to act irrationally and this is now evident

Mark Russell, Horsham,

The tories set the scene (low public expenditure) in the mid nineties to enable high growth during the decade after. Labour's high spending on tax credits and other state subsidies has enabled risky consumerism causing the inflation on essential goods we are now experiencing. Go back to the 90s.

mike lincoln , wakefield,

What is the problem with high inflation? Provided that your wages increase accordingly then high inflation can be seen as a good thing for those who are struggling with excess credit liabilities. Over a short period that credit then becomes affordable.

ian , maidstone, england

Andy in Monaco, I guess you'd happily see Sterling plummet as you will not be any worse off for it, unlike those of us working and paying taxes here in Blighty, seeing our earnings ever depleting due to 'inflation taking its course'.

Paul, Coventry,

Of course this government would prefer live now pay later as for a start that is how the UK has been run for the past eleven years then of course there's the obvious, they will not be in power when the chickens come home to roost. So much for prudence Brown. Also where's our family treasure gone?

D Case, Newquay,

What Willem Buiter omits is the rule of thumb that says "Less pain now, more pain later" generally means a good deal more pain in total.

We no more want to face up to our problems than Gordon Brown does, but we may vote for the people who do say the problem must be faced

Diversity, London,

It's not inflation that's hurting us - It is the cost of energy that affects everything else - Focus on reducing those costs, ie, nuclear and coal would be a step in the right direction - Reduce taxation on the working man and hold our government to account for it's spending - Problem solved!

WTaylor, London, UK

So you thought the supply of cheap oil to China and the derivative supply of cheap goods to the West would last forever. Tell me exactly who gave you a jobs on the Monetary Policy Committee?

Jason White, Paris,

I think the UK inflation is better than China faced. Our Chinese will face the inflation which had reach 8 percent in last month.

Cao ZhengMao, Xián , China

All logic suggests that rising commodity prices reduce demand relative to supply, not the reverse as you assert - unless you can explain otherwise...

Alan, Warwick,

Inflation comes from two sources - internal and external. Labour goverments have always taxed and wasted - this is predictable, and always causes internal inflation. Commodity price inflation is also predictable and not 'one off', especially when China plans to control the world's mineral resources.

Alan Gooch, Honiton,

To increase the strength of the pound, King INCREASEs INTEREST RATES, which cools the economy unless Brown spends more or TAXes LESS. The answer here to lowering inflation and keeping the economy on track (and boosting investment) is clear. Lower wage and corporation taxes and higher interest rates.

Justin, Barcelona, Spain

Buiter readily admits he did not forsee our current plight and I would suggest he cannot see what will drag us out of it.
There is therefor a case for reducing interest rates significantly and let inflation take its course.
Serendipity may then well provide the solution.
Raising interest rates wont.

Andy Howard, Monte Carlo, Monaco

I am puzzled by this half-witch half-bet view - how can the author be sure a huge jump in the BOE interests rate can make the enconomy "pain up front and less pain cumulatively" ??

Can he be sure there is no chance of "pain up front and more pain cumulatively" ?

John Lee, Watford, UK

We need a rates increase now. The BoE should never have been concerned about the housing market and raised them before. I really question the true independence of the BoE currently. Only by raising rates, strengthening the £ and tightening fiscal policy will we see a turnaround. Pain NOW

L Shorney , London, UK

Excellent analysis. Pain now or much more pain & a longer road to repair our damaged economy.

In a global world money will move for the best real rate of return. If the ECB raise rates & the BoE dithers, we will see a sterling crisis as money flows away from the UK .

Steve Marchant, Broadhempston, UK

The real question is the purpose of the BoE. Is it to keep inflation in line? If so, then raise rates. Is it to protect house prices from falling (and keep those stamp duty payments flowing in)? If so, then don't raise rates.

The sooner the BoE's identity crisis is sorted out, the better.

John F, London,

"Much of this increase in inflation may have been difficult if not impossible to foresee (I certainly did not foresee it)."

If our senior economists cannot foresee what the rest of us so easily could, then we really are in trouble.

Matt, London,

Raise, raise and raise interest rate its the only option and will cause the least pain in the long term.

Paul John Graham, Greenwich,

Raise intrest rates and you damage the wealth producing private sector while giving leverage to the public sector unions to demand higher wages. Cut public sector workers and this would give the government room to cut taxes. Fat chance of that happening with this government.

Tom Mein, Chorafakia, Crete

I think Buiter's articles are doing a lot of damage to the LSE's reputation.

I better appreciate why the MPC has made so many mistakes with thinking like his on board.

David, London,

As prices go up be it petrol for your car ,heating oil for your house or the wine in your fridge the governments tax take goes up thru VAT etc. Commentators seem to downplay this fact as our wastrel Labour politicians actually are one of the main contributors to inflation in this country

john wheeler, bath, uk

It seems that the only ' good ' inflation in this country is the house price inflation. We have been here before. Inflation measured by the government is 3.3 percent which is more that 50 percent of the target of 2 percent. Inflation in your and mine pocket must be 10 percent or more.

Martin, London, GB

@ Andrew Fanner - a cheaper hosue might be the asnwer. People have got it into their heads that we have, collectively and individually in many cases, been living beyond our means. We are not earning as much as we are spending. We either have to earn more or spend less.

Marcus Cotswell, London,

It'd be interesting to see how independent the BoE truly is if it opted for the recommended rise of 2%. I am sure that there would be a degree of dissuasion coming from certain quarters.

John M, Birmingham, UK

Boil the Frog slowly by Inflation; Labour Govts. have form on this one. I am surprised this time however, as it will still be simmering by the next Election.

R James, Clifton, UK

The BOE should raise rates to curb rising inflation expectations but since the era of cheap money and reckless borrowing is well and truly over anyway it's likely the markets will do the job for them anyway. Stop spending! Start saving!

Michael Harris, London , England

We need higher rates now to limit the possibility of a prolonged problem which will be far more damaging for the man in the street.

Crowther, Silsden,

Inflation is a monetary trick, tax on poor/middle class transfering wealth to super rich. CB's keep printing all the fiat money esp FED, where does it all go? asset bubles, high money supply leads to malinvestment, the mortgage bubble burst, now its the commodity bubble? Who suffers?

Gurpreet Singh, Gravesend, UK

There is no way we can avoid paying more for energy and ressources. We shall have "less" in the future.

BUT: We can save those expensive things; and we can look for alternatives... ...as we should have started 20 years ago...

Peter Vernunft, Berlin, Germany

Do we remember the Thatcher years and times of high interest rates in the late 80's, this being due to the Iron Handbag wanting to keep a lid on inflation - this created a pressure cooker effect that eventually led to inflation reducing?
Looks like we may be in for a similar ride here possibly?

Ian, West Mids,

"But the Governor does not point out that rising commodity prices have reduced supply relative to demand."

And you haven't explained why or how. If true, this would be both counterintuitive and contrary to common experience.

Ian Kemmish, Biggleswade, UK

How can you not have forseen a rise in commodity prices?
1) Commodities are limited resources
2) Sooner or later India and China were bound to want ot spend some of the revenue from selling us goods and services.

However our interest rates are already high by world standards.

Edward Green, Upminster,

The internal inflationary pressure at present in all government spending driven, while the private sector is in a perilous state, any action to raise or lower interest rates in the next few weeks could be disastrous.
Mr King should have demanded the government act to reduce its own vast spending.

Edward Green, Upminster,

I don't have any money for consumer goods now, and what is not spend on food, housing and energy is taken as tax. Any rise in interest rates will mean I must spend more on housing and thus less on somehting else. Eat less food? Er, that's not really an option. Less tax? Don't think HMG will be keen.

Andrew Fanner, Cowplain, UK

There is a lot of comment on the exchange rate recently but the indexes disguise that the GBP is undervalued against EUR as well as overvalued against USD. These do not simply balance each other out. Defeating inflation means higher rates, INCLUDING IN THE US, to ensure an even global recovery.

Alan, London, UK

Yes Yes Yes - I totally agree, and I think the majority would vote in favor. But those that make the decsions are touched by infaltion in the same way that the rest of us are. It's not a case of more pain later for us - we have the pain right here and now.

jeremy, hassocks, sussex

Inflation doesn't mean a think to the ordinary working guy.
When it's high he gets hammered.
When it's low he gets hammered.
It only exists to drive the little mans wage down!

Dave Bridge, Southport, U.K