Officials or well-intentioned observers sometimes go into denial over unwelcome economic data, by arguing that the bad news is all to do with some special factors. Such a trait is beginning to show in respect of inflation on the mainland, where much of the increase of more than 5 per cent in consumer prices over the past year is blamed on oil and foodstuffs. But why should such explanations make the overall inflation figure any more palatable, apart from conveniently posting Iraqi dictator Saddam Hussein (or US President George W. Bush) and the weather as scapegoats? The most optimistic view would be that the behaviour of these commodities has been an aberration, and their prices will, in due course, fall back to earlier levels, pulling the overall price index back down. Ostensibly, this would justify not fussing too much, if at all. But, if the increases have already had a knock-on effect to other prices and wages, and possibly also to such things as employment and investment, the unwinding process may not be so readily assured. For example, if, as is rumoured, higher agricultural prices have, by improving the incomes of rural communities, slowed migration to cities and therefore put upward pressure on city wages, the inflationary consequences may not be fully or quickly snuffed out, even when food prices fall back. A less optimistic, but still quite sanguine view, might be that, even if oil and food prices do not reverse their earlier surge, they will stabilise now, anyway. In this case, the rate of inflation may eventually slow, but past price rises are unlikely to be unwound; the overall price level will have been ratcheted up. This is hardly cause for complacency, but at the same time it need not necessarily spell disaster. There is ongoing debate as to what the appropriate policy response to occasional upward price shocks of this sort should be. Most central banks tend to focus on the rate of inflation year by year, rather than the price level itself. They do not like sudden price rises that cause their targets to be overshot, but once these have passed into history, they start again with a clean sheet. But if this happens too often, the public will become disillusioned about the long-term commitment of the authorities to keep inflation in check. This, in turn, would affect wage-bargaining, and push up interest rates in anticipation of higher long-run inflation. Worst of all would be a situation where the commodity prices in question were expected to continue advancing, in which case there would be no cause for complacency at all. Any excuses for inflation need, therefore, to be critically investigated. The big question, in the current mainland context, is whether the latest price rises for oil and foods are likely to be reversed. The likely consensus answer is: a little perhaps, but not very quickly. In that case, and given other pressures, if the overall cost of living is to be kept in check, the authorities will need to adopt a sufficiently cautious policy stance in order to restrict knock-on effects to wages and other prices. There is evidence of such efforts in recent administrative measures to cool the economy, but restraining inflation could remain intrinsically difficult for as long as money surges into the country as a result of the fixed exchange rate. Quite apart from the cost-of-living effect, the recent higher prices for oil and food could, if not reversed - and doubly so if expected to continue upwards - have important structural implications for the economy. For instance, if higher food prices are associated with an improvement in rural incomes, this may be a blessing for the poorer regions, despite its effect on labour flow to the cities. Meanwhile, higher oil prices ought to hasten the quest for greater energy efficiency. Each of these developments might be regarded as some sort of silver lining to the cloud of faster inflation itself. Tony Latter is a visiting professor at the University of Hong Kong.