Henry posed the question - is inflation targeting dead? - and there has been a large response.

A prominant public policy economist responded overnight: "I thought that your article in the Oz this morning was one of the most important and also analytically sound contributions on Australian macro-economic management in recent years. These are hugely difficult times. I have not yet arrived at your position on suspension of inflation targetting, because I don’t know what I would put in its place. But I agree that we face large risks in keeping the current system in place through the current commodity price extremes".

Henry wrote later (in his regular newsletter): Wayne Swan has been bravely supporting the Reserve Bank and its charter to bring inflation back into the target range.

But with powerful global food, oil and commodity inflation and the upsurge in China's inflation (removing a helpful source of strong deflation) this may be impossible to do except at great cost to the economy. ("The recession we did not have to have".)

So Henry suggests at least suspension of inflation targeting until the situation normalises.

This may well be the most important decision in the careers of Wayne Swan and RBA governor, Glenn Stevens. Also, and more importantly, crucial to the ongoing welfare of the Australian economy.

The Australian has led this debate, and its weekend edition contains several useful contributions.

Graham Lloyd asks of Glenn Stevens "Is he on the right track?"

The rueful Stevens, whose mood is nicely captured in the photo by Ray Strange, is reportedly sticking to his guns, but he will now be subjected to closer scrutiny than ever before.

He will stick to his guns for as long as possible.  But the pain out there in Struggletown is growing, and both Glenn Stevens and Wayne Swan risk a massive backlash if the pain turns into recession.

For Swan the risk is that he is part of a one-term government.  For Stevens what is at risk is the prized "independance" of the Reserve Bank.

Lloyd quotes academic economist Steve Keen: "The RBA is in a policy catch-22. (It is) trying to control inflation with something that does not work and in some cases makes the problem worse. Lifting interest rates has the potential to bring on a serious recession without doing anything about the higher costs of food and fuel."

Then there is "distinguished economist Henry Ergas", who makes the point that "the key is whether the pick-up in the CPI is a general change or a change in relative prices".

Barry Hughes, shrewd economy watcher and analyst, says: "there are clear dangers in not responding. 'We are having a replay of the 1970s where the oil price jumped up and the federal reserves in the US and the UK decided there was not much they could do about it. The result was a spike in inflation and a long recovery time'."

Lloyd points out that none of this is new to Glenn Stevens who said recently "... given the magnitude of the shock, the Australian economy has coped pretty well so far.

"In the early '50s, CPI inflation reached 25 per cent, then fell back to zero within a few years, associated with quite a pronounced recession. In the mid-'70s, inflation reached about 18 per cent and took a very long time to come down to acceptable levels.

"Stevens says this time we are grappling with a peak CPI inflation rate that looks as if it will be about 4 per cent in CPI terms, and trying to assess how soon it can reasonably return to 2 per cent to 3 per cent".

George Megalogenis has been talking to the monetary policy heavyweights.  Former RBA governor Bernie Fraser concludes Reserve "must lift inflation target" to "support economic growth and jobs".

Former RBA board member, Bob Gregory, "... said Australia risked a severe downturn if the 2-3 per cent inflation target were strictly adhered to when the China-led resources boom was forcing up food and fuel prices.

"We ought to be talking about how long it is acceptable to be outside the range when most of the inflation is imported," Professor Gregory said.

"Higher rates from broader objective" says Alan Wood. "AUSTRALIA'S monetary policy has arrived at a critical point, and how the Reserve Bank handles it will have profound long-term consequences for the economy and the central bank itself, indeed for all of us".

"What is going on with prices like oil, coal, iron ore, food and others is a structural change in relative prices and the price level in response to higher world demand for commodities in China, India and elsewhere.

"As these prices move from the old level to the new, it shows up as rising inflation. But prices will not go on rising indefinitely. We are not in for decades of double-digit inflation.

"Higher prices will at some point bring on increased supply and prices will stabilise or even fall back. This is a very important point. Australia's monetary policy framework provides for inflation to average between 2 and 3 per cent over the economic cycle. This gives the Reserve Bank crucial room to move.

"In current circumstances, it means inflation can be allowed to run over the top of the target band for some time to cover the transition from one price level to a new, higher one. What the RBA has to decide is how much of an overrun it will tolerate and for how long. It does not mean the target band should be widened or that monetary targeting [Perhaps he meant "inflation targeting"] is no longer viable".

PD Jonson, described by George Megalogenis as "a former monetary policy hardman and editor of the Henry Thornton website", is close to this position.

"What I would do is explicitly accept that rigid inflation targeting is unviable at present.  I'd focus on measures of inflation that abstracted from the effects of oil and food inflation and keep monetary policy tight to limit the flow-on effects".

"I suppose it is unnecessary to point out that if monetary policy had been tightened sooner and more aggressively, we'd be in better shape now".

Overall, there is a new consensus on Australian monetary policy. Amazing what a long weekend can produce.