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SCOTT SIMON, host:

Talk about the U.S. economy, and the word you'll hear most often is recession, but in the rest of the world, the word that economists are most concerned is inflation.

This week, the International Monetary Fund said the global inflation rate is at its highest since 1995. Soaring costs of food and fuel are among the main reasons, but there are other factors, depending on the country. Sooner or later, inflationary pressures are bound to further squeeze the U.S. economy.

Kenneth Rogoff is a professor of public policy in the economics department at Harvard University and a former chief economist at the International Monetary Fund. He joins us from Harvard. Thanks so much for being with us, Mr. Rogoff.

Professor KENNETH ROGOFF (Public Policy, Economics Department, Harvard University; Former Chief Economist, International Monetary Fund): My pleasure.

SIMON: What are some of the factors that are driving this increase in inflation around the world?

Prof. ROGOFF: Well, I think the proximate cause is the fact that although we in the United States are in a recession, most of the rest of the world is booming, and it's been booming for a long time, and it's bidding up oil prices, food prices and even manufacturers because a lot of plants are running at capacity.

SIMON: What about the relatively weak dollar? Does that have any effect on the global inflation rate?

Prof. ROGOFF: Well in a way, yes because the United States is the leader in the global financial system, and there are a lot of countries that effectively follow the dollar. They peg their currencies or sort of peg their currencies to the dollar.

So we're here furiously cutting interest rates, our Federal Reserve, because we're worried about going into an even deeper recession, but in the rest of the world, that's not what they need. They need to be hiking interest rates in order to try to stabilize their inflation.

But because countries like China, Saudi Arabia, a number of other countries, are pegging to the dollar, they're getting galloping inflation.

The weak dollar has not hit us yet. The dollar has fallen mightily, more than 25 percent over the last five years. So far it's only mildly fed into the prices we pay for imports, but probably over the next couple years, that's really going to come back to haunt us.

SIMON: In many ways, though, this is the - if I might put it this way - the downside of what's generally encouraging news in many other areas of the world, for example an expanding economy in China, in India.

Prof. ROGOFF: That's absolutely right. I mean, the biggest reason that we're seeing inflation globally is that things are just going better than anybody quite expected, but it's also true that central banks and monetary authorities around the world have been fairly timid about raising interest rates.

They didn't want to spoil the party, and we may find that they just waited too long and inflation goes up so much that they have to overreact when they bring it down.

There's a real danger that inflation, which has been incredibly tame, almost historically so over the last few years, is going to get back to the kind of levels we saw in the early '90s, the late '80s, and that could be really painful.

SIMON: Should the U.S. be more concerned about inflation or recession?

Prof. ROGOFF: I think our immediate problem is that we're relying too much on our central bank to do everything, and it cuts interest rates, and that helps liquefy the economy and helps at least reduce the recession, but the trouble is is that sets the seeds of future inflation.

We really need to bring in the regulators. Congress needs to do something in order to help out the Federal Reserve so that we're not depending so much on monetary policy, and if we don't do that, we really are going to have very high inflation for a long time at the end of this.

SIMON: Kenneth Rogoff, professor in the economics department at Harvard and former chief economist at the IMF, thanks very much.

Prof. ROGOFF: Thank you for having me.

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