Now Would be an Excellent Time to Disinflate
The MPC minutes for May are out, along with the forecast data from the 2012 Q2 inflation report.
This confirms that the MPC have deliberately allowed the CPI forecasts from 2 to 3 years out to drift downwards slightly. The reason? The near-term CPI forecasts have moved sharply upwards; in February, the Bank’s median prediction was for a 1.6% CPI rate in the first quarter of 2013, that has now moved up to 2.6%. The burst of QE has “worked”: the probability of a downside CPI miss has been greatly reduced.
The IMF drop the ball and call for more QE, lower rates and/or fiscal spending. Believers in the multiplier fairy become ever more hysterical; having painted themselves into a corner where monetary policy is somehow “impotent”, they now hope to eat (almost) free lunches from doing deficit spending! Extensions of the Bank of England balance sheet will have no effect, but we can borrow and spend to boost AD.
Are you kidding me? Are those guys watching what the Bank of England is actually doing? The short-term CPI forecast has moved up, there are no “supply shock” excuses from VAT or commodity shocks, and the MPC are allowing a passive tightening of policy to get it down again, even at the expense of instability in the medium term forecasts.
Change. The. Damn. Target.
(With apologies for being a bit ranty)