HSBC chief says central banks lack will to fight inflation

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The chief executive of Europe's biggest lender, HSBC, has accused the world's central banks of being insufficiently committed to the fight against inflation and predicted US interest rates would rise after the presidential election in November.

Michael Geoghegan told shareholders in Hong Kong: "Inflation is a long-term problem because there is no long-term will to solve it. He called on central bankers to raise interest rates, and suggested that more regulation may be needed.

He also said banking would need to change to avoid a repeat of the credit crunch. "I'm not a great fan of regulation... but there will be a need to look at the model in that area," he said.

Soaring commodity and food prices have seen consumer price indices peaking in virtually every major economy. Earlier this month the Bank of England, in its quarterly Inflation Report, admitted that inflation would not return to its 2 per cent target before 2011.

The problem is that resurgent inflation has been accompanied by a slowdown in economic activity. Policy-makers face a sharp dilemma: raise rates to tame inflation now, and risk a slump that could prove damagingly deflationary; or push rates lower to protect against a recession while risking institutionalising higher inflationary expectations.

Surveys of public opinion about inflation are studied by the Bank of England, as they are usually strongly reflected in wage bargaining and price setting activity. Accountants BDO Stoy Hayward said yesterday that UK firms expect inflation to continue to climb. Peter Hemington, partner at BDO Stoy Hayward, said: "Consistently high levels of inflation expectations put the Bank of England firmly between a rock and a hard place."