Tuesday, September 28, 2010

For the inflationists???? August inflation report

Inflation Report Press Conference Webcast

ok so merve makes the statement. Of course everyone can listen to the whole thing but if you want to see where the BoE are coming from on inflation expectations (the criteria they are looking at etc.), use the drop down list under mervs mugshot and click on: "Policy Stance and Inflation Expectations".

Posted by techieman @ 06:46 PM (1266 views)
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9 thoughts on “For the inflationists???? August inflation report

  • TM – I cant get the audio to open up on my machine to listen to Merv – I’ll leave it to later and then try again.

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  • I can’t listen to Merv either…*lol*

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  • hmm – ok well try this

    http://www.bankofengland.co.uk/publications/inflationreport/2010.htm
    then under “latest” click “watch webcast”
    then one of the realplayer speeds radio button

    then view webcast
    then you should be able to access the dropdown list
    “Policy Stance and Inflation Expectations”. is a question by a journo, but it sort of virtually sums up the way the mpc are thinking.

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  • ok so here is the transcript of the question i refer to:

    Laurence Norman, Dow Jones:

    A couple of questions, if I may. Firstly, you said right at the end of your statement something along the lines of – in whichever
    direction monetary policy moves in the coming months, you’ll keep the focus on medium term inflation. Does that mean that
    you think policy can’t stay where it is for very long, and is there a significant chance that the Bank may need to do more
    quantitative easing?

    And secondly, for the CPI, you’re saying now that inflation will remain above target throughout next year. Why wouldn’t that
    affect inflation expectations, and is there anything the Bank can do to ensure that it doesn’t?

    ———————————

    Mervyn King:

    On the first part, the comment was merely trying to make clear again that we look at monetary policy every month. And we are prepared to leave it unchanged or to loosen it or to tighten it as our judgement appears relevant at the time. So, you know, it’s a decision that is made every month when we come to it and look at it afresh.

    On the second, I think the reason for believing that this will not affect inflation expectations – and there’s clearly a risk because the experience of higher inflation could change inflation expectations – is partly that in the past two years we do not see any evidence of the ups and downs of inflation having altered inflation expectations in the medium term – there’s no evidence of that in financial markets, and the staff in the Bank did a very careful analysis of the surveys of inflation expectations for the medium term. The short run expectations have clearly risen, as indeed have ours. But in the medium term have remained close to the long run average levels. And I think it would be reasonable for someone looking at this to ask the question – what have been the short run price level shocks which have hit the economy?

    Would it have been sensible to have tried to offset them? And what could we have done? We could have raised interest rates very significantly in order to try to prevent inflation going up first of all to 5.2% and then to 3.7%. Now we didn’t do it in 2008 – many of you I think thought we should have been cutting interest rates a lot sooner than we did. But no one was suggesting that we should be raising
    interest rates rapidly to prevent inflation going to 5.2%, because people could see through the price level shock and they would
    expect that the underlying conditions would bring it back – as indeed it did.

    And equally, if we had raised interest rates significantly above their current very low level to prevent inflation going to 3.7%, we would have had to turn the economy back into recession again.

    Starting from the point when output is 10% below the level that it would have been on had the crisis not occurred, and with a million more unemployed people, far from increasing our credibility, I think we’d have undermined our credibility to have acted in that way, because the remit that we’re given makes very clear that we’re supposed to allow temporary deviations of inflation from target where they might otherwise lead to undesirable volatility in output.

    What we’re trying to do now is generate a steady recovery, but to keep inflation close to the target. I think our judgement is – and it can only be a judgement –

    but I put it out to you. Do you think it’s a reasonable judgement that with broad money growth very weak, less than 1% a year; with credit to businesses falling; with the labour market with spare capacity, more unemployed people, very low pay growth – if anything the numbers this morning show weaker pay growth than in recent months; with spare capacity in the economy in both the surveys, and given the shock to output that’s occurred – all of these things add up to a picture where it seems to me reasonable to say that the medium term inflation
    outlook is one where – once these immediate price level effects which are masking the downward impact of these longer term factors on inflation – when these price level effects have moved out of the picture – that inflation will come back towards our central projection which is actually below the target.

    Now that can only be a judgement, and all kinds of unexpected things will happen over the next couple of years. No one can pretend they won’t; they will. And we’ll have to respond to them. That’s what policy should do is to respond to the things that you can’t predict. But I think the way to anchor inflation expectations is to present a plausible story and analysis about why inflation has moved in the way that it has, what is happening in the economy now, and why we think it is a reasonable judgement that, looking ahead, inflation will come back to below the target.
    —————————————–

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  • ”blah blah blah weaker than expected,
    blah blah blah stronger than expected,

    blah blah blah stubbornly high,
    blah blah blah stubbornly low,

    blah blah blah this should happen,
    blah blah blah that should happen”

    Interesting how after being so wrong, he still manages to maintain a [small] degree of competency.

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  • morning hpw – impressive time your alarm clock goes off!

    I think the penultimate paragraph is the key here, since he has given all the ammunition there for when would be a good time to tighten.

    To summarise:

    Output is 10% below expected,
    broad money growth weak (and we know that since then it actually went negative),
    Credit down (despite QE – as you say not the best way to reflate the “real” economy- which is why i think there are some serious questions being asked about how to target this),
    low pay growth,
    more unemployed,
    spare capacity.

    I dont think its interesting i think its instructional, as to what they will do going forward (or more accurately what they are not going to do).

    I also think it interesting (and a valid point) that to have increased rates to squeeze out inflation when that was at 5%+ , knowing what was round the corner, would have been [and we cant know this for sure obviously] suicidal.

    A price to pay for massive unemployment and an immediate falling off a cliff type deflationary depression? Now whether you think that a price worth paying or not is another question, but at least we know what their thinking is and why we are paying that price.

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  • A price to pay for massive unemployment and an immediate falling off a cliff type deflationary depression?

    Yes, but do you really believe the question is as simple as that?

    Sounds to me like classic ”framing”.

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  • hpw – i think the question AT THAT TIME – i.e. when the CPI was at 5% knowing what was round the corner, WAS as simple as that.

    Your comment now implies that the MPC have bias, and that may be true, but we will only know that for sure if we see the indicators they are referencing turn around and still they maintain a loose policy. My understanding (and this may very well be wrong incidentally) is out of these indicators capacity leads, therefore this will be the first place to look.

    So the output gap will be the place they look before they tighten at all. Also they will likely wait to see the effects of fiscal tightening before ratcheting up rates aggressively. So its likely we will have derisory base IRs for some time to come.

    If there was “core” inflationary pressures all the indicators referenced would be the opposite of where they are.

    Interesting later on in the interview they talk about a new model that they will use…. i dont know if you listened to that bit.

    I suppose you could argue that the stats they use are also biased, or tweaked. I would seriously doubt that, but its a theory none the same.

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  • Also there has been – shall we say politely – speculation on this site that the Inflation target will be moved (upwards, so that they can dictate policy on a higher target). Merv answers that in the last part of the conference:

    Peter Hoskins, Sky News: Given the convulsions the world economy, the British economy, has been through in recent years, the inflation target has stayed at 2%. How comfortable are you with it staying that low or that high, depending on your view?

    Mervyn King: No, I’m comfortable with it staying at 2%. I think the difficulty that policies face is that, as you said, the convulsions of recent years meant that actual inflation has been well above it and sometimes well below it; it’s just moved around. And that came after 15 years in which inflation did not move more than one percentage point from the target every single month for 15 years. So this was a big change, and I think that makes it harder for us to explain policy as well as actually to try and work out where inflation is going to go once these shocks disappear.

    But I don’t think that’s an argument for changing the target, I would leave the target absolutely where it is.

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