Minutes just released show that all members of the monetary policy committee maintained their vote from the previous month. Andrew Sentance voted against the motion to hold rates, preferring a half point rise; Martin Weale and Spencer Dale preferred a quarter point rise; and the remaining six members voted in favour of holding rates. Adam Posen, as before, voted against maintaining the Bank’s asset purchase programme at £200bn, preferring a £50bn increase.
Some of those voting to hold rates acknowledged that “the case for an increase in the base rate had strengthened in recent months,” but preferred to wait for clarity on several uncertainties. Many think MPC opinions will be greatly influenced by the second quarter growth estimate, due out before the May meeting. On the “key question” of growth, the Bank seemed optimistic. “The most recent indicators of output had tended to support the view that growth had resumed in the first quarter,” read the minutes, citing surveys and indices of business output and sentiment.
Indicators of consumer spending were “much weaker”, however. Read more
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
Imported inflation from emerging countries can no longer be ignored, and central banks on the receiving end might need to tightly constrain domestic inflation to compensate.
This from an important speech by Lorenzo Bini Smaghi today in Bologna. The ECB executive board member points out that food inflation is here to stay and the era of ever-cheaper TVs is over, too:
Unlike the previous decade, 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. The gradual appreciation of the exchange rates of these countries should further affect the prices of products imported from advanced countries.
So several factors are working to increase imported inflation: Read more