Price Stability Über Alles
Another Inflation Report came and went.
The MPC are signalling very clearly they are going to get the CPI rate down. The underlying data is not published yet, but the fan charts have the central projection for the CPI rate around or below 2% for most of the next three years. The forecast at two years is usually the main target, and the central forecast looks well below 2% in the chart. This fact was put to Mervyn King in the press conference, his response was that the central forecast at 3 years was around target, risks “broadly balanced”. He also said that it was impossible to forecast anything at all at the moment because of the
black clouds of uncertainty Euro crisis. Square that circle!
King (or the MPC) have the discretion to move the goal pasts to justify inaction. If the 2 year forecast is too low, well, look at the three year forecast! When they want to justify changing policy, they will often look at the two year forecast. This is reprehensible behaviour, of course, but I’ve lost the ability to be shocked.
King mounted a relatively robust defence of the efficacy of QE, as evidenced by their ability to keep hitting the inflation target.
Careful Keynesians advocating deficit spending always include a caveat that monetary policy will “allow” faster demand growth – and/or higher inflation. We are three quarters into a “double dip” recession, four years into a “little” depression. And the MPC have decided that the best policy is to nail the CPI rate to the floor. At some point you have to consider that any view of a “benevolent” MPC who will “do the right thing” is not supported by the actual behaviour of the MPC. The MPC really really are targeting 2% inflation. At best. It’s in the fan charts. You can see it with your own eyes. It is what they are saying.
What more is there to do, but wait and hope that King’s replacement is not also an inflation nutter? Or that perhaps one day we’ll manage to elect a government which recognizes the inadequacies of the unelected technocrats to whom AD policy had been delegated? What hope of that while most UK macroeconomists continue banging the fiscal drum and ignoring the failings of the MPC?
Another sad day for