Fed's Fisher: Inflation costly for central banks

WASHINGTON (Reuters) - A top Federal Reserve official said on Friday that financial globalization does not take away the Fed's ability to control inflation, but raises stakes for central banks because investors can flee a depreciating currency.

"Globalization does not undermine the ability of the Fed, or any other central bank for that matter, to control inflation over an appropriate time horizon," Dallas Fed President Richard Fisher said in remarks prepared for delivery to a Banque de France symposium in Paris.

"But it does challenge us -- you might say it disciplines us -- to conduct monetary policy more prudently," said Fisher, who is a voting member of the U.S. central bank's interest rate-setting panel this year.

"In today's world, where investors can move their funds instantly from one currency to another to avoid depreciation, the price central bankers pay for inflation is much higher than in the past."

Fisher also said that the availability of cheap imports from China and other emerging markets has had an impact on domestic prices and inflation. Cheaper inputs into the production process have lowered prices. However, consumers will use their enhanced purchasing power to buy other things, putting upward pressure on prices.

Meanwhile, rapid growth in emerging economies has pushed up commodity prices around the globe, Fisher said. Commodity prices that have reached record high prices without a sign of reversing call into question the traditional emphasis on "core" inflation, which strips out energy and food prices, to measure price stability, he said.

"Over the long term, the price stability that matters most to the people who pay our salaries, since they do eat and drive, is stability of a comprehensive measure of prices," he added.

Fisher's concerns about inflation illustrate a divide at the Fed, where policy-makers have expressed varying degrees of concern over elevated inflation caused by high prices for energy and commodities.

The Fed as an institution has said its paramount concern is the risk that the sluggish economy could tip into recession. The central bank has lowered benchmark rates by 2.25 percentage points since September to 3 percent despite nagging inflation concerns, and is expected to lower rates by another half-percentage point at its next meeting March 18.

Fisher's comments also came as the dollar fell to record lows against the euro and the Swiss franc as the European Central Bank played down prospects of any interest rate cuts.

(Reporting by Mark Felsenthal, Editing by Chizu Nomiyama)