What, no readers for that title? Look, this is important.
First, though, the Guardian and Telegraph go head to head on Mervyn King Shutting Up. Jeremy Warner comes out with a delusional statement:
What’s the point of having an independent Bank of England if it cannot act and speak independently. If there had been a similarly independent voice with powers of enforcement to speak out on fiscal policy over the last ten years, we would not be in the mess we are today.
whereas the Guardian points out
detailed consideration of fiscal policy does not fall into the central bankers’ remit; there are a host of other organisations from the Institute for Fiscal Studies to the IMF that do that already
And how many of them pointed out a £90bn structural deficit? So why would the Conservatives’ Office for Budget Responsibility be any better?
I am more interested in what the Guvnor has to say about inflation. This speech is my bedtime reading. Pity me. Jeremy Warner this time sees a rise in rates before the election. Ed Conway highlights a spike in gilts (well, they seemed to rise 6-8bps . . . .) but his views on the end of looseness are more nuanced:
our newspaper’s support for QE and zero interest rates was strictly predicated on the fact that when they were no longer necessary, they should be withdrawn. Like any course of concentrated medicine, such drastic policies can be just as damaging as what they seek to prevent, if left in place for too long. It is hard to argue in favour of any extra QE next month, and the case for tightening policy is getting ever stronger.
The pound rising 1% is more of a sign that QE is expected to end sooner on the basis of these figures.
The most sensible analysis has come from Bond Vigilantes, who warn against Hysteria. Worth repeating this para in full:
Does this therefore mean that the inflation genie is out of the bottle? Very unlikely. Spare capacity in the UK economy is still huge, bank lending is weak, and money supply growth remains feeble, in spite of the Bank of England’s best efforts at creating money (note that this doesn’t mean that QE hasn’t worked – we have no idea what the growth or inflation rate would be right now if we’d never had QE). It’s difficult to see how inflation can be generated, unless energy and food prices skyrocket over the remainder of this year or sterling collapses (sterling has actually strengthened today on the inflation news today rather than weakened). We expect inflation to fall back again from the middle of this year once the base effects fall out of year on year numbers. The MPC will also be looking through today’s data release, and I can’t see this upside inflation surprise kickstarting any rate hikes – remember that the bank rate is set with a 2-3 year view of where inflation is likely to be, not a 2-3 month view.
This rather makes a fool of the dimwitted Spectator view that this shows how QE has driven up inflation. Somehow, it has managed this feat without the intermediaries of bank lending, money growth, weaker currency, or even rising wage claims. Amazing.
Most depressing prospect of next 24 hours: could Massachusets Senate seat lose the prospect of health reform for the US? I find McArdle’s glee at the prospect mystifying – I just don’t get what she thinks is so great about 40m uninsured Americans.
Finally, investors are rebelling against fund managers. Unfortunately, as I have pointed out, they are lousy investors themselves.
Perhaps the most useful graph to come from The Great Inflation Panic of Jan 2010 has been kingly produced by the excellent Daniel Pimlott of the FT. The link is:
From my mobile – the story is ‘Inflation spike is echo of recession’.