Wednesday, 19 May 2010

Fifteen love to the Bank of England.

“Inflation” surges in the U.K. This so called inflation consists of the price rises caused by the decline in the pound and by the recent Value Added Tax increase and by fuel price increases.

That’s not inflation. Inflation consists of CONTINUOUSLY rising prices. The crucial question is whether these price rises feed through to increased wage demands. If they do, you have a wage-price spiral, and that IS inflation. The Bank of England seems to have got this point - at least I saw a report saying they were keeing a careful eye on wage settlements. Quite right. In contrast numerous economics commentators have not got the above distinction between possibly non inflationary price rises and genuine inflation.

Fifteen love to the Bank of England on that one.

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