Apr

18

 It's interesting that the UK's high CPI numbers require a letter of explanation from the Bank of England to Gordon Brown as to what will be done. Evidently this can't have much to do with matters under the future Prime Minister's control, such as taxes etc. As the Bank is obliged to provide the 'explanation' it seems that inflation must have a one-dimensional relationship with interest rates.

This just goes to show how much more difficult and subtle the game of chess is as opposed to managing an economy. As every chess player knows even a small pawn move on the side of the board can have serious implications for the position as a whole, even if it doesn't seem relevant immediately.

So given the simplicity of their task the bank better get its act together and start playing those interest rate moves with far more subtlety. And I'm not sure how they've managed to make such a mess of it so far, with US CPI signaling lower inflation than the UK even though interest rates are lower.

From the FT website today:

Consumer price inflation in March hit its highest level since comparable records began, sending sterling through the $2 barrier and resulting in Mervyn King, governor of the Bank of England, having to write a letter of explanation to Gordon Brown…..Any reading that is more than 1 percentage point above or below the 2 per cent target requires the Bank governor to write a letter saying why the target is being missed and explaining what will be done to bring inflation in line. 


Comments

Name

Email

Website

Speak your mind

Archives

Resources & Links

Search