Comments out on Bloomberg from MPC member Kristin Forbes
- recent pound strength has had more muted CPI impact
Repeating Carney's comments from yesterday but she is a known hawk so has a different agenda
Comments come in a research paper just published that proposes a fundamental change in the current framework used to analyse and measure how exchange rate movements affect inflation
"It suggests that instead of treating exchange rate movements as exogenous when estimating their effect on various economic variables, it is necessary to take a step back and model what caused the exchange rate to move in the first place. An application of this framework to the UK shows that this approach can explain why exchange rate movements have had such different effects at different points in time, including why exchange rate pass-through was surprisingly strong during the crisis and more muted recently. This new modelling framework could substantially improve our ability to predict the effects of exchange rate movements on variables such as inflation, thus improving policymakers' ability to conduct monetary policy in the future"
Full report at the BOE here
I've asked our guest economist John Hearn for his response and I'll post in due course
You can follow John here