The FT notes:
Inflation rose to 3.2 per cent in October, prompting Mervyn King to write a letter to George Osborne, the chancellor, to explain why prices have been rising more quickly than the Bank of England’s 2 per cent target for a prolonged period.
There are real problems with inflation now:
a) It is in pricing, not earnings, so hits the poorest hardest;
b) It is being fuelled by speculation in commodities because there is a critical shortage of gilts (yes — I mean that — a real shortage of government debt) in the market place.
c) It is being policy driven — which just says the target is wrong.
Let’s embrace the reality. This is:
1) we need more government debt — it’s the only thing people want to but, so for heaven sake start spending to meet demand.
2) The next round of QE cannot buy up gilts — it has to be real spending.
3) We need inflation — it’s the only way to get rotten money out of the system;
4) We need house building whilst we have inflation to rebalance the pricing of property in the UK and restore sanity and hope to our economy;
5) Inflation is good right now — we could easily topple into deflation so strong is saving — and that would be a disaster.
Or to put it another way — the fiasco of setting a 2% inflation policy has to be recognised.
The fiasco of controlling the value of money when what we need is employment is madness.
And the desire to maintain the value of money when current money values are shot to bits is crazy.
We need inflation — but the right sort — that’s in earnings, not assets. Then we’ll have hope.
Now deliver it, is what I say.