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Inflation Targeting

Friday, 16th May 2008

Well, yes:

The Bank of England will "crucify" consumers unless the Treasury lets it abandon its inflation target, one of Britain's leading economic authorities has warned.

The Government must consider re-writing the Monetary Policy Committee's remit or leave the UK to face an unnecessarily deep and painful economic slump, according to Peter Spencer, chief economist of Ernst & Young Item Club.

The slump might in fact be necessary to stop the inflation though.....just a thought. But as Peter noted earlier, Martin Wolf thinks differently. Inflation is indeed the enemy that must be defeated, even at the cost of a slow down (or reversal) of economic growth in the short term.

Although I have to admit I have seen a suggestion from one wag (no, sorry, can't recall where) which makes great sense.

One of the things that has contributed to the current problems is the way in which the inflation target itself was changed. From RPI to CPI, thus neatly removing housing costs from the target that the Bank of England was aiming at: just as house prices were going through the roof.

So, why not change the inflation target back to RPI? As house prices are now falling we'll be bang on target.

Maybe.

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