LONDON (MNI) – Bank of England Monetary Policy Committee member
Adam Posen disagrees with Governor Mervyn King’s view that a ‘series of
one-off shocks’ are largely to blame for the UK’s CPI rate overshooting
the BOE’s target of 2%.
Governor King’s assessment is that higher oil prices, the
restoration on January 1 of the standard rate of VAT to 17.5% and the
ongoing effects of the sharp depreciation of sterling in 2007-8 are
largely to blame for the spike in CPI.
But Posen believes that a combination of loose monetary policy in a
robust economy is raising inflation expectations.
“It looks like you had a very loose policy before, when the outcome
turns out not to be too bad… that raises inflation expectations,”
Posen said at a Society of Business Economists event.
Commenting on the decline in sterling, Posen said: “If pricing
decisions, exports versus imports, mattered we would have seen a much
bigger change in net exports than we’ve seen… It’s very hard to
reconcile that with pricing behaviour explaining inflation.”
“If we are lucky our monetary policy and global growth will keep UK
CPI in the upper-half of our projections,” he said.
CPI rose to 3.7% year-on-year in April, before dipping to 3.4% in
May, from just 1.1% in September 2009.
–London newsroom: 4420 7862 7491; email: wwilkes@marketnews.com
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