So it’s another inflation letter. That’s no suprise for readers of this site. What is so sad about the MPC is their failings are so predictable. They lurch from boom to bust to attempted boom, and the inflation figures career all over the place as you might expect. Today they had to report that during the worst downturn in the economy since the 1930s inflation has soared to 3.5% on the CPI, 3.7% on the RPI and well above 4% on RPIX. Now the savage cuts in living standards that Labour’s economic policy was always going to deliver are upon us, as wages are not going up by anything like the current rate of inflation.
In 2008 I explained that rates were too high and this was going to cause a worse downturn. In 2009 I warned rates were too low and too much money was being printed. That was bound to cause an inflationary surge. The MPC is meant to concentrate on controlling prices, and keeping them to around 2% a year. Why do they find it so difficult?
They are not asked to avoid slump or control booms, to consider output or the levels of the currency. Sometimes they seem to be acting as if they were, but they do this also by reacting too severely too late. We have lurched from overheating to severe downturn despite- or more properly owing to – their energetically destructive monetary policy.
Today they tell us we have very low interest rates and they are going to keep them that way despite the high inflation. They have no sense of irony – or apparent knowledge of the real world. On this very day we learn credit card rates are above 18%, or 37 times the base rate! The other day a local bank told me a small business could borrow at 8.5% or 17 times the base rate. Mortgages if you can get one are on offer at around 9 times the base rate.
Who is the MPC kidding? I fear, just themselves. Their rates are too low and their money printing has been too energetic. No-one in the private sector can do any business at anything like so called base rate. Markets largely ignore the MPC. All they seem to want to do is to help the government overspend, borrowing more cheaply, whilst the rest of the economy pays totally different rates. Meanwhile the regulators force the banks to lend less and raise more capital at the bottom of the slump, making it more difficult to finance a recovery. No wonder we are in mess.