While we're sitting around waiting for the inflationary spiral to take hold the US economy seems to be heading for that soft landing so beloved of economists. Alan Greenspan's Senate testimony last week was universally seen as dovish in comparison to his comments back in February of this year.

Then, he was worried about the level of consumer demand which he feared increase inflation.

Low levels of unemployment were a problem too as was the wealth-effect generated by the kind of money people were making on the stock market. Now he seems to think that February's problems have abated (certainly people are a damn sight more wary of the stock market) and he's been talking a lot about the slowdown in consumer spending which he thinks might continue.

While he's no doubt feeling somewhat more relaxed about things in general, Greenspan isn't the sort of man who wants to let the mask of vigilance slip. So the Fed will continue to monitor the economy and it's still possible that rates might be tightened at least once more. Although the markets don't want to think so, bonds rallied after the testimony and the Nasdaq hopped up by over 3 per cent.

However, the general feeling after his testimony was that the Fed, as usual, is pretty much in tune with the economy and will still be pro-active rather than reactive. Europe's inflationary vigilance is somewhat less of an assured policy. Inflation in the euro zone is rising and doesn't look as though it will change that trend any time soon.

The euro is still paddling around, occasionally managing to rush higher only to be bashed down again - usually by US sellers. The European Central Bank's target ceiling for inflation is 2 per cent so a 2.4 per cent rate in June (from 1.9 per cent) in May isn't exactly good news.

Oil prices remain high which doesn't help matters either. So it seems that further rate hikes are on the cards - the general consensus has been for around 50 basis points before the end of the year but some commentators are now pushing that even higher.

Growth in Europe has been relatively strong which would also impact on inflation. Rather bizarrely, though, the most recent business confidence figures out of Germany have shown that confidence dropped last month which is probably driving the ECB council crazy. Both France and Germany continue to have inflation rates below 1 per cent, but everywhere else the pressure is higher.

None higher than here, of course. From being the state with the lowest inflation rate about a year ago we've now shot to the top of the euro inflation league with a rate of 5.5 per cent. This is, apparently, a 15-year high which surprised me because it doesn't seem like we've had low-inflation for 15 years. Horror of horrors, I lived through double-digit inflation in this state.

The Government's response - asking for price freezes - is very interventionist and hopelessly naive. Why will anyone freeze prices when demand is actually pushing them up?

Telling publicans not to put up the price of drink when you can hardly get into a pub for the crowds of heavy-spending drinkers (especially those throwing away good money on vastly overpriced soft drinks) is like spitting into the wind.

For as long as there are people with money to spend, and overspend, on goods and services then inflation will snap away at the heels of the economy. And spending is what they want to do - what's the point in saving when you're being paid less than the rate of inflation and you pay DIRT on your interest?

And for those who took the leap into the stock market for the first time last year and bought Eircom shares - what's the point in investing when the value of your investment can go down so dramatically? Why not just go out and buy the car (three-month waiting list) or the furniture (ditto) or the house (at a few hundred thousand more than your first expected)?

I was convulsed with laughter at the weekend when I picked up a newspaper and saw a headline which screamed at me that Eircom had rallied. On reading the article I saw that they had gone up by exactly 1 euro. Remind me not to rush out to the shops and spend my ill gotten gains all in one go!

That was an 0.4 per cent gain. Hardly what you'd call groundbreaking news but maybe anything to do with Eircom is ground-breaking these days. It's certainly ball-breaking for investors who have stuck with the company. It's no use in saying everyone should have bailed out immediately after the flotation, although if you borrowed money and didn't then maybe you needed the expensive lesson.

Most investors were hoping for less-spectacular but more gradual long-term gains. At least one of the planks that worried Greenspan vis-a-vis the US economy - massive stock market gains spurring on consumers - has been pulled from under first-time Irish investors.

Wealth is a matter of perception, though. For as long as we're told that we're doing well and we can afford to buy things and the good times are rolling, then most of us will believe it and spend accordingly. So Charlie and Bertie et al are as much to blame as anyone for fostering a belief that the good times will roll forever.

Actually, even with inflation at its present horrible levels, things are not that bad. Food prices are higher, my weekly shopping basket has confirmed that to me, but there is a choice about what you buy. (Not, regretfully, in Tesco stores which continue to pile their own brand stuff on the shelves at the expense of old-time favourites.)

But it doesn't take much for people to suddenly feel less well-off which is when the gloom sets in. And, with a lot less technology-and-telecommillionaires around this year, there may be fewer people pushing up prices at the top end of the consumer chain.

Which is good news, perhaps, if you're in the market for the latest must-have mobile-phone or equivalent gizmo. But not if you're nipping down the shops for a pint of milk where wholesale prices have gone up by 7 per cent.