Inflation fears are expected to push up U.S., Japanese and European interest rates, and maybe Canadian rates as well.

Even though core inflation — excluding food and energy — remains tame, headline numbers have moved up in recent months. Central bankers aren’t going to take any chances that price pressure will become embedded in the system. The risk is that continued high energy costs could get priced into other goods and services.

So far, this hasn’t happened because of the China factor. Low costs of production in that country have left manufacturers everywhere else with no ability to raise prices, and this has offset the upward trend in service costs.

However, oil prices have not fallen as expected and economic growth remains stronger than anticipated. Economists think this is temporary, but central bankers want to make sure consumer demand slows enough to keep the lid on prices.

Analysts now expect another two interest rate hikes in the U.S. this year. New U.S. Federal Reserve Board chairman Ben Bernanke has been concerned about inflation since taking office in January. Bernanke is now focusing on a shorter time horizon, pointing out that core inflation in May was up an annualized 3.4% from six months earlier, vs up only 2.4% since May 2005.

At the same time, European Central Bank president Jean-Claude Trichet has said he is not satisfied with the inflation level in Europe, and Bank of Japan governor Toshihiko Fukui has indicated that Japanese monetary policy needs to be adjusted “without delay.”

Bank of Canada governor David Dodge hasn’t yet jumped on the bandwagon, but analysts think he may be forced to raise Canadian rates later this summer.

Dodge is in a difficult position because of the dual nature of the Canadian economy. Even though higher rates may be justified in Western Canada, which is booming, they would hurt Ontario and Quebec, which are already struggling with the negative impact of the strong Canadian dollar on the manufacturing sector. IE