Fighting soaring oil prices and inflation

As the era of cheap energy is ending, oil prices began climbing faster. They are rising even faster after Western forces launched attacks on Libya. The prices are currently close to $110 a barrel. Oil-rich Libya was producing 1.69 million barrels a day before the unrest, according to the International Energy Agency (IEA). It is now producing 400,000 barrels a day.

Currently, the symptoms of overheating are confined to a few countries such as Brazil and Indonesia. Though Japan's nuclear crisis caused oil prices to fall a few percentage points, there is no doubt about the rising trend. And as the IEA has said, sustained high oil prices could damage world economic recovery. But the disruptive developments in several North African and Middle Eastern countries, which have led to rising oil prices, is intensifying the risk of overheating elsewhere.

The loose monetary policy in the United States, much of Europe, and Japan may temporarily sustain demand and reduce unemployment. But deferring fiscal adjustment and interest rate hikes too long could lead to overheating in emerging markets.