Bank of England governor Mervyn King yesterday set out his reasons for the overshoot of CPI inflation last month in a letter to new Chancellor George Osborne. They were all dubious, says Henderson chief economist Simon Ward.
Over the last year I have argued, probably ad nauseam, that Bank of England and consensus inflation forecasts were too low. April figures delivered another unfavourable 'surprise', with the headline CPI and RPI rates moving up to 3.7% and 5.3% respectively. RPI inflation is now at its highest level since the aftermath of the late 1980s Lawson boom. Governor King's latest explanatory letter claims the overshoot of CPI inflation relative to the 2% target is fully explained by higher oil prices, the rise in VAT and exchange rate weakness. This is dubious. Energy and VAT are unlikely t...
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