SO IT has finally happened, just as the nay-sayers said it would. A memo is leaked suggesting that South Korea’s central bank is considering switching out of dollars, and the value of the American currency drops.

Unexpectedly weak job market and retail figures hit the wires, and the experts scramble to be the first in print with downward revisions of their forecasts for the growth rate.

Economists at a leading investment bank muse out loud about $100-a-barrel oil, consumer prices tick up one month, and inflation hawks circle the Fed. A few companies open the earnings-reporting season with bad numbers, and investors scramble for safety.

The good news is that the bad news is not all that bad, as investors seem to be realising. The Korean central bank denied that it planned a huge unloading of dollars, and monthly job and retail-sales figures are notoriously volatile. Oil prices have headed down, not up, since the much- reported $100 forecast. As we have got deeper into the earnings-report season, the corporate profits picture turns out to be rosy, if unspectacular.

This brings us to inflation. Last month core consumer prices (excluding food and energy) rose by 0.4%, twice the rate economists had been predicting.

It brought the annualised three-month increase to 3.3%, which, if maintained, is above the rate that would allow Alan Greenspan, the Fed chairman, to relax in his bath while writing his speeches.

More important, the index watched by the Federal Reserve Board’s monetary policy committee has been rising steadily — at about twice the rate of a year ago. In the most recent survey of its 12 business districts, published last week, the Fed notes: “Price pressures have intensified in a number of districts.”

Add to that picture anecdotal evidence that some of the nation’s largest companies are recovering pricing power, and petrol stocks so low that prices are likely to rise further during the summer driving season, and you have reason to believe that inflation worries are more than just imagined things that go bump in the night.

But ask the wrong question, and you get an answer that is not very useful. The wrong question is: have prices been rising more rapidly of late? Answer: Yes.

The right question is: will the recent behaviour of prices force the Fed to abandon its policy of steady, “measured” quarter-point increases in interest rates, and drive up long-term interest rates to levels that will reduce growth? The answer is: probably not. And here’s why.

The most obvious reason is that one month, or even a few months, does not make a trend, especially when anyone with some memory of the behaviour of prices in recent years analyses the figures.

The recent one-year increase of 2.3% might seem dramatic to traders who graduated in 2002, but “for anyone with even one grey hair, most of their lives have been spent thinking that a 2.3% inflation rate is something close to an unattainably low ideal”, reports the Lindsey Group.

It is certainly true, as Fed vice- chairman Roger Ferguson told the press, that “there are emerging signs of inflation (and) we need to track pricing developments quite closely”.

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