Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20
AMAZON Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 11th Jan 20
Gold Price Reacting to Global Flash Points - 11th Jan 20
Land Rover Discovery Sport 2020 - What You Need to Know Before Buying - 11th Jan 20
Gold Buying Precarious - 11th Jan 20
The Crazy Stock Market Train to Bull Eternity - 11th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Bank of England Governor Mervyn King's UK Inflation Letter Full Text

Economics / Inflation May 19, 2010 - 02:19 AM GMT

By: Nadeem_Walayat

Economics

Best Financial Markets Analysis ArticleThe following is the full text of Mervyn Kings Inflation excuses letter written to the new Chancellor, George Osbourne in response to the failure of the Bank of England to target CPI inflation at 2% and keep it below 3%, as a consequence of which UK inflation rose from 3.4% to 3.7% with the more publically recognised RPI inflation measure literally soaring to a 19 year high of 5.3% from 4.4% as detailed in yesterdays analysis (18 May 2010 - UK Inflation Hits New High of CPI 3.7%, RPI 5.3%)


Dear Chancellor,

Tomorrow the Office for National Statistics (ONS) will publish data showing that CPI inflation rose to 3.7% in April. That is more than one percentage point above the target. Under the terms of our remit, I am therefore writing an open letter to you on behalf of the MPC. As requested by the National Statistician, in order to avoid conflict with the release of the official CPI statistic, the Bank of England will publish this open letter at 10:30am tomorrow.

Our remit specifies that we should explain why inflation has moved away from the target, the period within which we expect inflation to return to the target, the policy action that the Committee is taking to deal with it, and how this approach meets the Government's monetary policy objectives.

Why has inflation moved away from the target?

Inflation has risen from 1.1% in September 2009 to 3.7% in April. The MPC's assessment is that that rise is largely accounted for by three factors: first, the impact of higher oil prices, which on average in April were nearly 80% higher than at the beginning of 2009, pushing up on petrol price inflation; second, the restoration at the beginning of January of the standard rate of VAT to 17-1/2% and third the continuing effects on inflation of the sharp depreciation of sterling in 2007-8. 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.

Over what period does the MPC expect inflation to return to the target?

The change in VAT and higher petrol prices will continue to be reflected in the overall price level. But, unless they increase further, that should affect the twelve-month CPI measure of inflation for no more than a year. Moreover, the continuing impact of the past depreciation of sterling is still pushing up on consumer prices, but likewise the effects on inflation can be expected to wane over time. As this happens, the MPC expects that inflation will fall back. Nevertheless, inflation has been somewhat higher than expected over the past year and the Committee is conscious that the pace and extent of the prospective fall in inflation are highly uncertain. It will monitor developments closely.

Money growth and nominal spending growth show signs of recovering, at least in part as a result of the Bank's asset purchases. Output growth has also picked up and the projections outlined in the May Inflation Report show that its pace is likely to increase. The May projections also suggest that, absent further price level surprises, it is likely that inflation will fall back to target within a year. Thereafter, as discussed in the Report, the MPC expects that the effects of the persistent margin of spare capacity in the economy - built up during the recession - will continue to pull down on inflation, probably bringing it below target for a period. But if the recovery continues as expected, that will gradually erode the slack in the economy, bringing inflation back to target.

What policy action are we taking?

In my letter to your predecessor three months ago, I explained the unprecedented action the Committee took in response to a large contraction in demand to ensure that the outlook for inflation in the medium term remained consistent with the 2% target. At its May meeting, the Committee judged that it was appropriate to maintain the current stimulatory stance of monetary policy. The low level of Bank Rate, together with the continued effects of money-financed asset purchases, are providing a significant boost to nominal spending which should continue for some time. That will help to keep inflation on track to meet the target in the medium term. But the MPC is very conscious that there are risks to inflation in both directions. On the downside, there is a risk that inflation will turn out to be weaker, perhaps because the influence of spare capacity in the economy could be more significant than assumed. On the upside, there is a risk that inflation may be raised by further commodity price increases or other price level surprises. And if the current period of above-target inflation causes inflation expectations to move up that may lead to some persistence in the current high level of inflation.

The MPC will continue to set policy to keep inflation on track to meet the inflation target in the medium term, taking into account the balance of risks. We stand ready either to expand or reduce the extent of monetary stimulus as needed.

How does this approach meet the Government's monetary policy objectives?

By keeping inflation close to the 2% target in the medium term, the Monetary Policy Committee will make its most effective contribution to economic performance in the United Kingdom. Price stability, as the remit to us states, is "a precondition for... high and stable levels of growth and employment". And so, by keeping inflation low, we will thereby support growth and employment. The events of the past few years and the heightened degree of uncertainty have made clear that - now more than ever -the importance of a stable and transparent monetary policy framework is paramount.

I will place this letter on the Bank of England's website for public dissemination.

Your Sincerely

Mervyn King

Mervyn King's temporary inflation above 3% statements are sure starting to look permanent whilst he continues with using excuses to strip this that and the other OUT of inflation so as to arrive at a rate that is at or below 2%. George Osbourne also replied in public, the full text of which will be posted in the next article.

The Inflation Mega-Trend

The full implications of the unfolding inflation mega-trend including how to protect your wealth are contained within the Inflation Mega-trend ebook (FREE DOWNLOAD), which includes analysis and precise forecasts for:

  • Interest Rates
  • Economy
  • Inflation
  • Gold & Silver
  • Emerging Markets
  • Stock Markets
  • Stock Market Sectors and Stocks, including ETF's
  • Natural Gas
  • Agricultural Commodities
  • House Prices
  • Currencies
  • Crude Oil

The 109 page ebook is being made available for FREE, the only requirement for which is a valid email address.

Source: http://www.marketoracle.co.uk/Article19596.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-10 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on UK inflation, economy, interest rates and the housing market and he is the author of the NEW Inflation Mega-Trend ebook that can be downloaded for Free. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules