The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Wednesday, April 13, 2011

Is the Bank of England no longer an inflation-targeter?

Adam Carr of ICAP justifiably wonders...

"One of the more interesting price moves last night was Sterling – down about 46pips (1.6255) after inflation fell to 4%y/y to March. Now the view expressed by newswires and the press (that I’ve read) is that this fall in inflation from 4.4% to 4%, somehow justifies the BoE’s decision to keep rates steady. Not seeing that myself. 4% is still well and truly above the target and even excluding the VAT, the ONS estimate inflation would be above 3% (the target being 2%).

Indeed on a monthly basis, CPI rose by 0.3% or 3.6% annualised. There is not a lot to be relaxed about here, and all the excitement I’m seeing, the view that somehow this result vindicates the BoE is delusion at its worst. I still expect a near-term hike from the bank. I base that view on the fact that deflation is no longer a threat and that the economy is no longer facing a depression. With inflation well above the band the decision for an inflation targeting bank is simple. Rates should not be at a record low. The fact the MPC is undecided about this suggests that the BoE may have dropped its inflation target – we’ll see."