inflation

John Authers

The Bank of England has hit the target at last. UK inflation is at 2 per cent, bang in line with the Bank’s target, for the first time since the end of 2009. This is good news for the UK, which had been buffeted by an incipient inflation problem. But it is part of a global trend that could be far more problematic: deflationary pressure.

As the chart shows, the BoE now completes a set of all the four major developed market banks – along with the Federal Reserve, the Bank of Japan and the European Central Bank – to have inflation at or below the target of 2 per cent. Read more

James Mackintosh

Among phrases you don’t hear any much any more are:

  • Safe as houses
  • As sound as a pound
  • As safe as the Bank of England.

It shouldn’t be a surprise that all three are out of fashion, after the US housing bubble that brought down the world economy, the collapse of sterling and the Bank of England’s failure to control inflation over either the past 50 years or the more recent past, when it was aiming for 2 per cent (the blue line on the chart).

UK CPI inflation and the target

Yesterday’s UK Budget avoided the extra inflationary pressure that would have come from fiddling with the target, which should give some support for the pound. But don’t get too positive: outgoing governor Sir Mervyn King voted for a second time for more monetary easing, and while he was outvoted again, Mark Carney is widely expected to be both more dovish and more convincing. I discuss this in today’s Short View column and video, and in greater detail below:

 Read more

James Mackintosh

Investors could hardly be more excited about the pressure on the Bank of Japan from new prime minister Shinzo Abe. Japanese equities have soared and the yen crumbled (until this week’s slight strengthening, at least) on hopes the BoJ will act more aggressively to end the deflation, which is widely blamed for crippling the economy.

The big plan is to push the BoJ into adopting a 2 per cent inflation target, double the 1 per cent goal it set last February. But given how badly it has missed that target, would 2 per cent really matter? Read more

James Mackintosh

The most profitable way to be wrong over the past five years was to bet that frantic printing of money by central banks would create inflation – so buy gold. Since the start of 2007 gold has risen at an annualised 19 per cent, a tasty return, particularly when compared to equities.

Yet, there’s been no sign of consumer price inflation, even as the US Federal Reserve explicitly targets asset price inflation (Fed jargon calls this the “portfolio channel” for monetary transmission of quantitative easing; in English that translates as rigging the market). Read more