Imported inflation from emerging markets is a short-run factor which the Bank will take into account, Mervyn King has said at today’s release of the quarterly inflation report. “In the very long-run, however, inflation is not determined beyond these shores but domestically.”

This is a surprising statement, and one at odds with some of his European peers, at the very least. Lorenzo Bini Smaghi, ECB executive board member, recently warned of a sea change in inflation dynamics. “Unlike the last decade,” he said, “the process of reducing the prices of manufactured goods imported from developing countries seems to have ended, particularly in respect of products imported from China.” Read more