INFLATION, and its behavior over the coming year, is now the central question among the people who make economic policy for this country. Ripples of anxiety went through the financial markets last week after Paul Volcker, the chairman of the Federal Reserve Board, made a passing reference to the possibility of higher inflation ahead. But the thought was not a new one to investors. Long-term interest rates, after a steady decline since last summer, stopped falling in late April and have now risen a bit. Bondholders don't intend to get caught again earning interest that's less than the inflation rate.

The future course of inflation is uncommonly hard to predict at this point. The decline in the dollar's exchange rate is generating inflationary forces. But they operate with long delays, and since the beginning of the year, they have been more than offset by the drop in oil prices. That's why the cost of living has actually been falling. The concern arises from the prospect that the effects of the cheaper dollar will be fed slowly into the economy for many months ahead, long after the low oil prices have been absorbed.

If the economy soon begins to expand faster, as most forecasters expect, the danger of higher inflation will increase, and interest rates will rise in response -- putting a brake on further acceleration. That is the trap in which the country now finds itself. Conversely, inflation is more likely to stay low if the economy continues to run in second gear. On Friday the government reported that 7.3 percent of the civilian labor force was unemployed in May. That's up from 7.1 percent in April. Unemployment is right back where it was a year ago. There may well be faster expansion ahead, but it clearly hasn't started yet.

The chief impact of slow and uncertain growth is falling, as always, on working people who have the bad luck to be caught in the shrinking sectors. It means that new jobs aren't being generated fast enough to provide a safety net for the people being pushed out of their former livelihoods in farming, oil production and manufacturing.

Here in Washington, slow growth of the economy has a further implication that will become more apparent as the summer goes on. Federal revenue is running behind the administration's expectations, which means that the budget deficit is growing, and the Gramm-Rudman-Hollings targets are going to be even harder to hit than they seemed last winter. A failure to meet the G-R-H limits would also aggravate fears of higher inflation ahead.

There may come a point, later this year, when the country decides to take the risk of pushing toward higher growth and employment. But it's necessary to be clear about the nature of the risk. It keeps coming back to inflation. The beast isn't dead. If you look carefully, you can see its muscles twitching. It's only dozing.