Tuesday, February 15, 2011

Mervyn King Is Stretching The Definition Of "Temporary"

U.K. inflation rose to 4% in January, meaning that it is now double the Bank of England's supposed 2% target.

Bank of England Governor Mervyn King tried to gloss over his failure by blaming it on the VAT increase and claim that it the increase is therefore just temporary, just like he blamed the 3.5% inflation rate in January 2010 on the reversal of the temporary 2009 VAT cut. Yet in January 2009, inflation was 3% despite that cut.

And indeed, with the price index being 116,9 with the 2005 average as the base of 100, the 5-year average of inflation is in fact about 3%. When the 5-year average exceeds the target by a full percentage point, you really can't blame it on "temporary factors".

Instead, as many people have said before "it was entirely the fault of Mervyn King" [and fellow Bank of England decision makers].