Hardly a win for traditionalists.
…each monthly rise in food, energy and import prices will, by pushing up the overall price level, affect the official twelve-month measure of inflation for a year. So CPI inflation is likely to remain markedly above the target until well into 2009. I expect, therefore, that this will be the first of a sequence of open letters over the next year or so.
Read the first of many then.
The summary: inflation to spike above 4 per cent in the second half of the year, on the back of sharp rises in oil and gas prices. The Bank remains focused on a two year time horizon. The context is rather measured – cue stock market up, sterling down.
There are good reasons to expect the period of above-target inflation we are experiencing now to be temporary. We are seeing a change in commodity, energy and import prices relative to the prices of other goods and services. Although this clearly raises the price level, it is not the same as continuing inflation. There is not a generalised rise in prices and wages caused by rapid growth in the amount of money spent in the economy.
Or as Lex put it, “Frankly, I’m getting a bit tired of taking the flak for problems that are not of the Bank of England’s making.”
Related links
King forced to explain surge in inflation above 3% – FT.com