Tuesday, May 27, 2008
How long will the UK keep an unrealistic 2% inflation target?
Bloomberg: Inflation Hurts German Consumers, French Companies
Confidence among French executives and German consumers fell more than economists forecast as surging prices sapped purchasing power and raised production costs.
Posted by alan @ 05:39 PM (525 views) Add Comment
7 Comments
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1. C'mon Correction said...
A target is something you aim at. The BOE haven't aimed and kept inflation at 2%, so it's not their target. Who knows what their target is? To make the average Brit 15x their salary in debt perhaps?
2. bystander said...
Hopefully quite some time as it may be the only way of saving the pound.
3. bystander said...
alan, do you work for Ernst and Young Item club by any chance, or the treasury???????:)
4. Cheekie Charlie said...
The bigger the rise in inflation the bigger the housing crash! It's all about wage inflation, which is the only thing in the last ten years which hasn't rocketed. I wouldn't be suprised if the average wage suffers from deflation with the plight of the middle classes, their overpaid jobs and useless degrees!
5. uncle tom said...
The more I think about it, the more I favour a 5% inflation target for the UK; although it should be declared a 'temporary' target, until current global volatilities settle down
If they try to hold on to 2% for too long, it will lose credibility completely, and inflation will take off, uncontrolled.
Only by raising the target is there any chance of managing the problem.
6. alan said...
bystander,
I don't work for either of the above.
Very soon people are going to start to look at the 2% and see all the inflation going on around and judge Brown as being useless. It makes some sense to move the target to something realistic. However, Brown can't easily do that becase:
a) The recently agreed public sector pay increases were based on it.
b) He changed to it and the ECB have something pretty similar.
Therefore, he is probably stuck with it.
7. growler said...
"it makes some sense to move it"
I don't agree, just because a target is difficult, it should not be relaxed. Throwing "good money after bad" is not applicable.
Inflation is a long term problem. A "couple of percent" changes can be marketed as "not a big deal in the short term" to Joe Public thus making them soft on it, but it's the job of Dear Pridence (sic) to think long term about the value of money. As I've said before, inflation suits borrowers - and the Government is the biggest borrower. We should be looking to INCREASE interest rates. Yes, we risk some unemployment as business used to cheap credit will have a (much needed) reality shock, but we would increase savings and bring the pound back to some sort of value to at least help reduce the soaring prices of imports.