Thailand has been more resilient to shocks since 1998, given the manageable inflation, low unemployment, more flexible exchange rate and increased international reserves.

This level of inflation, combined with falling unemployment and rising capacity utilization, is a recipe for continued preventative rate hikes.

Despite low unemployment, wage growth remains contained. With job gains slowing, the risks from wage inflation appear to be receding. Interest rates will remain on hold in 2006.

Europe has double-digit unemployment and no inflation problem, ... Any European Central Bank tightening will be swamped by much more from the Fed.

Moreover, the four motors of consumption -- that is wages, inflation, unemployment and consumer confidence -- are on a downward trend and should drag spending down.

Unemployment is sufficiently high, and the economy has just come out of a relatively mild recession, so inflation pressures are relatively soft right now. It will take a while of solid growth before we have upward pressure on inflation, so the Fed can be a little relaxed about it.