BoE deputy plays down inflation fears
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Bank of England deputy governor Charles Bean has played down fears of over-inflation but warns the UK should not aim to inflate its debt away.
In an piece written for the Daily Telegraph, Bean argues that continuing inflation may not be an inevitability and says the Bank has been correct in keeping rates low this year.
According to the Office of National Statistics, the Consumer Price Index rose to 3.7 per cent last month and the Retail Price Index rose to a near twenty-year high at 5.3 per cent - both figures significantly above previous Bank forecasts.
While Bean admits inflation has been higher than expected, he is confident that it will fall once again and reiterates the Monetary Policy Committee’s mantra of keeping inflation at 2 per cent in the medium term.
He writes: “At present, there are risks to inflation in both directions. On the downside, some of the factors that have raised inflation, such as the restoration of the VAT rate and the rise in oil prices, will, if they are not repeated, drop out of the inflation rate over the course of the next year. And while the exact margin of spare capacity in the economy must be open to debate, at this early stage of the recovery it is more likely than not that this will bear down on inflation for some time.”
While Bean is not convinced inflation will persist, he is not in favour of suggestions that continued inflation is a good thing as a means of reducing private and public debt.
He says: “Aside from the dubious morality of redistributing wealth from savers to borrowers, past experience shows that a bit of inflation has a nasty habit of turning into a lot of inflation.”
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