Monday, 11 April 2011

Mervyn King says the rise in inflation is temporary.

Do you worry about the increasing expectations of inflation? Well, worry not, the Bank of England governor, Mervyn King, asserts it is nothing to worry about:

April 18, 2007
The Governor said that inflation had become more volatile, in line with the Bank’s forecast, and he repeated its view that inflation was likely to fall back “within a matter of months”.
21 June 2007
Our central view remains that inflation will fall back this year as the rises in domestic gas and electricity prices last year drop out of the annual comparison, and the recent cuts in prices feed through to household bills. But it is important to look through those temporary effects to the outlook further ahead.
Oct 12, 2007
The inflation report describes a benign central view of steady growth with inflation remaining close to the target,” said governor Mervyn King.
However, he anticipated that the rise in inflation would be temporary and would be due to increases in imported energy and food prices that were unlikely to recur.

12:30PM BST 17 Jun 2008
The Bank Governor indicates that the recent rise in inflation is both largely beyond his control, having been generated by international factors, and will be temporary.
16 September 2008
"Inflation has risen sharply this year, from 2.1% in December, to 4.7% in August. Inflation is ultimately determined by the pressure of money spending on capacity, which is controlled by monetary policy. But, other factors both here and in the rest of the world can have temporary implications for inflation.
16 Dec 2008
The MPC considers the direct price level effects associated with the changes in VAT to be an example of such a temporary disturbance.
British consumer price inflation rose unexpectedly to 3.2 percent in February, data showed on Tuesday, and Bank of England Governor Mervyn King said it was probably a temporary move due to sterling weakness.
it is likely that overall CPI inflation will return to target in the first half of 2009 and then move materially below it later in the year.
13 Oct 2009
"In August, Governor King forecast inflation falling 'quickly' with the chances of it dropping below 1pc as 'more likely than not," said Philip Shaw, an economist at Investec.
December 16, 2009
As the Monetary Policy Committee [MPC] learnt last year, a temporary rise in inflation, by itself, is not a good reason to raise interest rates.
6:00AM GMT 17 Feb 2010

In the letter, the Governor said the Bank's Monetary Policy Committee (MPC) expected the rise to be "a temporary deviation of inflation from the target" because of short-term factors including VAT, the volatility of oil prices, and the fall in sterling in 2007 and 2008 which is still feeding through.

May 19, 2010 - 02:19 AM
The MPC judges that together these factors more than account for the deviation of CPI inflation from target and that the temporary effects of these factors are masking the downward pressure on inflation from the substantial margin of spare capacity in the economy.

10:54PM BST 14 Aug 2010
However, Mr King has repeatedly argued that high inflation will be the temporary result of one-off shocks – including higher fuel prices and, from January 2011, the rise in VAT to 20pc from 17.5pc – while a sustained UK economic recovery is not yet guaranteed
15 November 2010
As I described in my August letter, the MPC's assessment is that the current elevated rate of inflation largely reflects a number of temporary influences
6:00AM GMT 16 Feb 2011
Mr King believes inflation should ease as "temporary" factors such as the VAT rise, the low value of the pound and rising energy prices fall away.

So, worry not. The current inflationary trend is "temporary", and will - as has been repeatedly assured for months, even years now - fall back to within its 2.0% target any day now.

1 comment:

  1. Good post - there seems to be a notable lack of independent economic commentary on the UK economy, whilst there is a plethora of them for the US economy. The MSM commentary is mostly laughable. I think the weak and incredible (not credible) explanations coming out of the Bank of England - to justify the failure to meet their mandated inflation target over and over again- is a symptom. The economic theories that underpin and justify the BoE inflation mandate and prudential oversight are fundamentally flawed. Governments and regulators (including the BoE) have painted themselves into a corner, which they cannot get out of. The BoE is trying to maintain publically that the their economic models are still valid (for example "low levels of steady inflation is a good thing", "deflation is a terrible thing to be avoided at all costs", "interest rates can be raised to reduce inflation", "asset price inflation should be ignored", "government deficits do not expand the money supply and are not inflationary", "credit expansion does not lead to inflation"), whilst at the same time privately trying to fight credit contraction, which they are not mandated to do ("keep interest rates at zero to prevent credit contraction"). The result is the paradoxical policy you have demonstrated. Deflation in consumables is not only a good thing, (we can buy more stuff for the same fiat tokens than last time), but also something that the UK has enjoyed for several decades. It is, I believe, not consumer price deflation that King is worried about, but rather ASSET deflation, and in particular the UK housing market, that he is afraid of. About 80% of UK 'wealth' is in current house 'valuations'. Any continued contraction of house valuations will probably have severe consequences, not least for the banking sector. Too bad that this seems inevitable. Can I suggest you add keywords to your posts? This might be useful to readers later.