Responding to a Guardian editorial, dated Thursday 14th August 2008, entitled “From slow to stop”, the editor writes:
… At more than double the Bank’s 2% target, Tuesday’s figure of 4.4% was quite bad enough. Mr. King, however, signalled yesterday that big heating bill increases already in the gas pipeline would soon push it the wrong side of 5%. Next month the governor will be picking up his pen to explain himself in an open letter to the chancellor, as he is obliged to do on a quarterly basis whenever living costs rise by more than 3%. Never an easy letter to write, if the bank was seen to be emphasising expansionary action over price stability, it could become plain awkward. [sic]
Writing in response:
The inflation target given of 4.4% does not include energy or mortgage payments, the two most significant factors that affect the underlying rate of inflation.
The government should surely feel that given an actual decrease in oil prices over the last few weeks, the methods used by which inflation is calculated in Britain are out of synch with reality. Considering, too, that Britain is rather isolationist in terms of European integration – such as the rejection of the single currency, when others are clearly using it – and, how Gordon Brown, when Chancellor, changed the previously measured and reliable RPI to an indifferent European index, how much faith do we have in the current projections? The projection of 4.4% is most certainly underestimated.
© Mark Dowe 2008: all rights protected
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Filed under: Economic, European Union | Tagged: Bank of England, economic recession, inflation, interest rates, single currency, wage settlements
