Inflation is back. So says the International Monetary Fund as well as  the Economist magazineIn China, India, Indonesia, Saudi Arabia, Russia, Argentina and Venezuela, prices have risen over the past year from eight to 29 percent. In the United States, inflation looks modest by comparison–3.9 percent.

But we cannot suppose that this is an inconsequential figure. Inflation was in the range of four-to-five percent when Richard Nixon inaugurated wage and price controls in 1971. This was   a bad idea and didn’t last long. Moreover, when the restraints were lifted, inflation soared to 6.3 percent on the average in 1973, fueled by high prices for oil, and, some say, the residual effects of spending for guns and butter during the Vietnam war.

Inflation zoomed to 14 percent during the Jimmy Carter years, prompting this president to take the most important action of his administration: He removed G. William Miller  from the chairman’s office at the Federal Reserve, where he had fiddled while the dollar burned, refusing to raise interest rates, and transferred  G. Willie, as he was known, to Secretary of the  Treasury, then filled the critical job at the Fed with Paul Volcker. It was Volcker who tamed inflation early in the tenure of Ronald Reagan.

Now Paul Volcker is warning the Federal Reserve that if it does not tighten interest rates, as Dallas Federal Reserve president Richard Fisher also has been implicitly urging, the country could face another bout of stagflation as it did in the 1970s, with rising prices in the midst of a stagnant economy.

The question is this: Is current Fed chairman Ben Bernanke right for this job?   Certainly his work on financial institutions and the Great Depression has contributed greatly  to the Fed’s strategy of loaning funds to investment banks and underwriting the J.P. Morgan Chase rescue of Bear Stearns.

But the benchmark interest rate is too low at two percent, according to Paul Volcker and the Economist. Richard Fisher has opposed the last two  cuts as well. At the end of April, the Federal Open  Market Committee hinted that a pause might be in the offing. That’s good, but will this be enough? As others have noted, our situation today is not so different from that in the 1970s: oil prices are high and we’re dealing with the effects of guns and butter, or rather, guns and prescription drugs.

While the Fed, presumably, is immune to politics, fears that the election might be marred by recession are creeping, perhaps,  into the minds of some of the governors, immobilizing their  judgment. But once a new president has been chosen, it will be time to act decisively against inflation. If Ben Bernanke doesn’t want to be another G. Willie Miller, he must move on this front as soon as the election is settled. Otherwise the new president will have to think carefully before reappointing Bernanke when his term as chairman expires in 2010.  His tenure on the board  lasts until 2020, and certainly he has a lot to offer in that capacity. But a strong leader is needed at the Fed who can inspire confidence in the soundness of the dollar. I hope Bernanke can be that leader, but if cannot, he must yield to someone as tough and effective as Paul Volcker was in 1979.