King's inflation fears
The Governor of the Bank of England is worried about inflation. And so he should be. The latest figures out on Tuesday showed inflation had drifted down slightly. But the Retail Prices Index is still 4.3% and has been above 4% now for six months.
You have to go back 15 years to April 1992 to find inflation stuck above 4% for that long. That was the month when John Major unexpectedly won the General Election; a billion people around the world watched the Freddie Mercury tribute concert at Wembley; and the IRA bombed the Baltic Exchange in the City of London. It was also the month when pop group Right Said Fred was top of the charts with the memorable Deeply Dippy.
In the strange language called ‘Bankish’ that the Governor Mervyn King speaks he told business people in Wales this week "we might expect some upward pressure on inflation" then added "but we should be cautious". Translation: We are concerned that four interest rate rises have not controlled inflation.
He went on to warn people taking on debts "it is unwise to borrow so much that the repayments are affordable only if interest rates remain at their initial levels". Translation: we are going to put up rates again. Probably soon. And perhaps more than once.
In his fifteen minute speech the Governor asked 22 questions about the economy. And ended up saying "I don’t have answers to those questions. But of one thing I can assure you…we will never stop asking ‘why?’"
You might think ‘if the Governor of the Bank of England does not understand these things, then who does?’ or perhaps ‘…then God help us all.’
And there is some evidence that the Bank of England, which for nearly ten years did preserve the value of pensions and savings by controlling inflation, has lost the knack. In April Mervyn King had to write to the Chancellor of the Exchequer explaining why inflation was more than 1% above its target level. Since then it has drifted down as oil prices have stabilised. But transport, household goods, telephone charges, and mortgage costs all pushed upwards this month. Manufacturers are poised to raise prices. And the benefits of cheap goods from China are coming to an end.
Controlling those pressures will require more interest rate rises. Or the Bank’s actions in 2007 will end up as Right Said Fred sang in April 1992 – Deeply Dippy.
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