Mervyn’s Letter
There’s nothing like a spot on national radio to help focus on the issues of the day.
Yesterday the inflation figures were announced alongside Mervyn King’s open letter to the Chancellor about why inflation has moved to 3.3% year on year in May, and what he proposed to do about it. My job was to put all this into words that the regular listener to any of the GCAP Media radio stations (Capital 95.8, Classic FM etc) would understand.
That’s not an easy task when talking in sound bite sized chunks. Added to which this isn’t inflation driven by exuberant consumerism, so the traditional cure of raising interest rates isn’t going to work that well. Looking through the numbers, the largest contributors to the increased inflation figure comes from rising prices for food and energy, which includes motoring costs. The prices of these are outside the control of the Bank of England, and raising interest rates is merely going to add to the worries of ordinary consumers who are beginning to buckle in larger numbers - I read also that the number of repossessions has risen significantly this year compared to last.
Dennis
Completely agree with the sentiment about inflation not being driven by consumerism but by energy prices etc.
Isn’t the issue we have though that the Bank of England have the finger pointed at them to control inflation, and the measures they have to control things are limited to interest rate policy. Its a pretty blunt measure as it affects everyone but doesnt really address the root causes of the inflation.
Should those who control economic policy be looking at other levers to pull other than interest rates alone?
Comment by Caspar Craven — June 25, 2008 @ 7:59 am
Caspar
It’s difficult to see what powers we would want to give to the Bank of England that would have an effect on the current drivers of this round of inflation.
If the BoE is going to use interest rates effectively, to curb borrowing and spending, it needs to run hand in hand with a government who are prepared to put a cap on the tax it receives from things like oil. The irony is that as the price of energy rises, so does the amount of VAT that the government receives. This in turn fuels (sorry for the pun) the inflation rate rise.
This does suppose that those who control fiscal policy and those controling monetary policy have some meaningful discussion rather than playing politics.
If you want to read how inflation is driving people out of business take a look at my blog entry Feast or Famine
Comment by Dennis Hall — June 30, 2008 @ 9:40 am