MPC minutes – nice data, but where’s the inflation?

22nd April 2015 By: Ranko Berich

BoE MPC Meeting Minutes – 22/04/15

The MPC minutes show that the Bank of England is still puzzled about one simple question: where’s the inflation?

The minutes said it was ‘unlikely’ that economic activity could continue to grow at this pace without generating inflation. The general consensus of the members is that growth is set to continue and that inflation will inevitably follow, leading to rate rises from the Bank.

However, the expected inflation has failed to rear its head. Despite economic theory and the Bank’s models indicating that prices and wages should be about to increase, the latest inflation figures show an almost complete lack of upwards price pressure, and not just in food and fuel. Of course, all the economic models in the world are no substitute for a real improvement in the hard data.

In these circumstances, the Bank has no option but to wait and see. There is sufficient uncertainty around estimates of slack in the UK economy to justify cautious monetary policy in the immediate future. Should wages show the improvement that the Bank expects, this may all change, but in the meantime, the Bank’s policy can only be extreme caution.