Two camps can be distinguished in how central banks are dealing with the current rise in inflation rates.

The large central banks, led by the American Federal Reserve, tend to assume that inflation rates will recede again from next year and that monetary policy will remain called upon not to lose sight of stimulating the economy.

In several small countries, however, the central banks are taking action against inflation by raising key interest rates.

In comments, the Fed's announcement that it will gradually reduce its bond purchases has been seen as an indication of a major shift towards tighter monetary policy. It is not so. Bond purchases have almost no effect in times of good economic activity, but interest rate hikes, which are more likely to have an effect, are not expected in the United States in the foreseeable future. As has happened several times in the past, the Fed apparently considers developments in the labor market to be more important than possible inflationary dangers, which it prefers to belittle. In view of solid economic growth and an inflation rate of a good five percent, American monetary policy remains expansionary. This is also shown by the reaction on the financial markets; stock prices have risen and bond yields have fallen.

The Bank of England has joined the camp of procrastinators.

In her communication she had prepared the financial markets for an increase in its key interest rate this week, but then became afraid of her own courage and decided against such a step.

This resulted in a sharp fall in UK bond yields in the bond market.

The ECB could follow the Fed on bond purchases

In her endeavor to tighten her monetary policy even more slowly than her colleagues in Washington and London, ECB President Christine Lagarde has ruled out key rate hikes for the entire coming year, although there is no understandable reason to stick to the negative deposit rate.

Here, too, bond yields fell.

Like the Fed, the ECB will probably reduce its bond purchases in the coming months, as the purchase program associated with the pandemic is likely to expire in spring 2022. However, within the framework of its program created in 2015 and still in operation, the ECB will retain sufficient flexibility to also purchase bonds in the future. Countries like Switzerland and Denmark, for whose monetary policy the exchange rate of their currencies against the euro is of considerable importance, will join the snail's pace of the ECB.

Central banks from other countries, which are more actively addressing the dangers of inflation, are countering the hesitation of the big players.

Key interest rates have already risen in New Zealand, Poland and the Czech Republic, among others.

The central bank in Australia does not want to raise its key interest rate yet, but it does not control government bond yields in the future.

Will there be a wage-price spiral?

Who is right - the hesitant big ones or the little ones hurrying ahead?

The answer to the question should be in 2022, when it becomes foreseeable whether the current high inflation rates will remain a brief episode or whether significant wage increases will usher in a spiral of rising wages and prices.

It is currently not clear which scenario has the greater probability of occurrence.

It is undeniable that monetary policy can do nothing directly to counteract the current shortages in the supply of raw materials and other goods, primarily due to the adverse effects of globalization. No central bank can influence the supply conditions in individual goods markets; it would not have any mandate for this.

However, a central bank can very well prevent the fact that, once the supply shortages have come to an end, an excessive increase in aggregate demand will cause the price level to rise significantly.

It has the mandate and the necessary instruments to do this, although experience has shown that increases in key interest rates are more effective than reducing bond purchases.

The hesitation of the big players still coincides with the majority opinion in the financial markets, which also regards inflation as a temporary phenomenon.

In turbulent times, however, one should not place too much trust in longer-term expectations.

The dangers of inflation should not be taken lightly.