There are two special factors here — the first is of course weather which has been a big problem for a lot of agricultural commodities in Russia, Latin America and now in China. Second, bad policies have a also been a problem. I can’t emphasize this enough: there are a lot of bad food policies in the U.S. and other parts of the world that are compounding the food problem. I’ll highlight one example, export restraints on food from Russia and India. The combination of bad weather and bad policies has been the major driving force behind the recent rapid rise in food prices.

On oil prices, I mentioned that we expect the recent spike to be a temporary spike, unless there are major disruptions in Libyan oil production which we doubt. President Clinton talked about oil independence in terms of ethanol policies — but the big game-changer here is not ethanol but unconventional sources of natural gas — shale gas, tight sands and so on. I think this is what is going to change things for the U.S., not ethanol policies frankly.

With respect to the Middle East and North Africa, we are at one of the crossroads in history. The great news is, the transition in Egypt was a peaceful one. Looks like the one in Bahrain may also be peaceful. Unfortunately, the Libyan situation is not playing out peacefully — it is splitting the country. Our best guess is that Gaddafi will step down, but there may be more bloodshed before that happens.

The big countries to worry about are Iran and Saudi Arabia. We’re more worried about instability in Iran because of what happened a year and a half ago, and its very poor economic situation. We’re less worried about Saudi Arabia. Some of you may have seen today’s headline. The king has given a gift to the Saudis of $36 billion. Basically, he’s trying to buy them off. He may succeed.

The Saudis have a lot of money to throw at this problem, so I’m less worried about Saudi Arabia although I think the markets are a little jittery about it. The Saudis will also have to make some meaningful changes in terms of their constitution.

Bottom line: there’s lots of instability in the region, but it’s very unlikely that oil prices will go to $120 or $130 or where they were in 2008.

Meanwhile, inflation is not a problem in the U.S. Let me explain why. With an unemployment rate of around 9 percent, how can we possibly get wage inflation? There are huge amounts of excess capacity in the U.S, so how can we possibly get price inflation? The same is true in Europe and Japan. But we are running out of capacity in countries like China, Brazil, and India, so inflation is a bigger problem there. From that perspective, we are seeing two worlds — a low growth/no inflation world — what I call the “crawling economies” —  and a high-growth/high-inflation world — what I call the “galloping economies”.

Even though food and fuel inflation is pushing up headline inflation, core inflation in the U.S. and Europe is still below 1 percent.

Why should we care about core inflation? Core inflation is inflation without food and fuel. People say, what relevance does core inflation have? There is one use for it. It measures the spillovers from food and fuel inflation to the rest of the economy. The good news now (as in 2008) is that there are no spillovers. That’s really good news. And that’s what the fed cares about.