Tuesday, Jan 16, 2007
Inflation at an 11-year high
BBC: Inflation rate 'at 11-year high'
The MPC could quite easily be accused of dithering for way too long as inflation is now expected to hit an 11-year high.
Posted by denzil @ 09:22 AM (148 views) Add Comment
5 Comments
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1. Nohpc said...
I have a question about Merv's letter to Gordon Brown where he has to state what action the BoE is going to take to get inflation back on track. My understanding was that the only way the BoE could influence inflation was through interest rates. How else can they influence inflation?
If this is the case will merv's letter not simply say. Dear Gordy, inflation seems to be a little high so we're gonna hike up rates for a while. C ya in the pub matey! Love Merv.
2. autopilotengage said...
I think they're waiting for teflon tone to sell his house before they hike them much further so maybe there's some smoke and mirrors to come yet! An "inflationary spiral" is not called such for no reason; if you don't "nip it in the bud" as you have a political agenda which prohibits you from doing so, then your "stitch in time" won't be there to "save nine". They can duck the letters and fudge the figures all they want, neither approach will make any difference to the final consequences of continued inaction. How long before sterling takes a dive....
3. monty said...
Nohpc - alongside interest rate rises the BoE also has the dark arts of open market operations with which to control inflation. Basically it's the printing of money. They can reduce the amount of Sterling in circulation by buying it up with their reserves. Obviously this will affect the price of whatever they happen to be selling, be it dollars (oooo), gold or gilts.
Here's a good wikipedia entry on the subject.
http://en.wikipedia.org/wiki/Open_market_operations
I'm baffled as to why the media obsesses with the interest rate.
4. Boarder said...
They could also increase the ratio that banks have to hold in cash.
5. monty said...
That is the case in the US but UK banks are subject to a voluntary cash reserve ratio. AFAIK the BoE does not enforce this.