In February, consumer price inflation rose to 2.8 percent, after holding steady at 2.7 percent since October, and looks set to rise further. The number, however, would probably not reduce the chances that the Bank of England will sooner or later pump more money into the economy to stimulate the stagnant economy because they are more interested in growth than in inflation at the moment. High inflation has reduce British households' disposable income, and a further rise will be a concern to the government regarding the decreasing consumption. The Bank forecasts inflation will exceed 3 percent later this year due to upward pressure on the cost of imported goods and raw materials caused by sterling's near 7 percent slide against the dollar since the beginning of 2013 and higher utility bills. What could be expected from the Bank of England to help better the situation? The arrival of new Bank governor Mark Carney in July may bring some changes, but more importantly, stopping any further sterling fall would be necessary because of its damaging consequences on inflation.
Source: http://uk.reuters.com/article/2013/03/19/uk-britain-inflation-idUKBRE92I0AI20130319
3 comments:
At this point, wouldn't pumping more money into the economy be somewhat counterproductive? If they are looking for economic growth, and higher inflation will cause consumers to save even more than they already are, how will this increase growth? Maybe I am missing something.
As far as I know, after a recession, when many resources are underutilized, an increase in the money supply can cause a sustained increase in real production instead of inflation. According to Fisher equation in which MV = PQ, an increase in M could lead to either an increase in P or an increase in Q or both, so maybe the Bank of England is looking forward to the increase in Q since consumers will expect inflation and consume more of the goods now and so do company- producing more goods to avoid the increase in costs.
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