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After two consecutive months of interest rate cuts of 0.5% each, it was clear yesterday that he would not be changing tack. After all, Stanley Fischer has self-respect too. He can't be seen zigzagging.

So Fischer maintained course yesterday, explaining the failure to raise interest rates for May by pointing to signs of a slowdown in economic growth, which will curb inflation within the foreseeable future. We only need to wait. He also said that the 12-month forecast is now 3%, which is still within the "price stability target."

But the truth is that Fischer has knowingly chosen the growth target at the expense of the inflation target. He doesn't want to raise interest rates because this would strengthen the shekel against the dollar, and he wants a weaker shekel to support exports.

There was a time, not so long ago, that Fischer even sought the mid-target range of price stability, in other words, an annual inflation rate of 2%. These days he doesn't even mention the mid-target range. In 2008, even 3% will be an achievement in his eyes.

The interesting question is whether the current inflation can be fought by increasing interest rates. If it were a case of inflation caused by excess demand, raising interest rates is the correct and most efficient weapon. Such a move depresses demand, increases the cost of maintaining stock and encourages savings, thus acting against inflation.

But this is a different inflation - inflation from the supply side. In other words, inflation of costs. The rise in costs is coming from overseas, and has nothing to do with us at all. The issue is, of course, the cost of food and fuel, which have increased sharply over the past year. It's an inflation of rice!

Neutralizing energy and food from the consumer price index, we find that the index has risen by just 1.8% in the past 12 months, not 3.7%. It makes all the difference in the world.

These price increases can be seen as a sort of external market that have caused price levels to rise, but not continued inflation. It makes no sense for these prices to continue to increase endlessly. At some point they will make an around turn and drop. This will happen when farmers worldwide increase their cultivated land in response to rising prices, and when the global slowdown results a fall in demand for oil and food. So it is incorrect and inefficient to deal with inflation of costs by increasing interest rates.

But in economics there are no certainties. It's all a matter of degree. If it turns out that April and May indices are very high, there will be more pressure on the governor to increase interest rates. As a result, he will be waiting impatiently for May 25, when the Central Bureau of Statistics will publish its growth statistics for the first quarter of 2008. Fischer will be praying for some degree of slowdown in the economy.

The following day, he will have to make a decision on June interest rates. If the statistics show some slowdown, he will be able to continue his current policy of unchanging interest rates, out of a belief that a slowdown will take care of things. But if it turns out that the economy is continuing to grow at a fast pace, the house he has built will crumble.