Tuesday, January 19, 2010
Mervyn King - Sudoku and inflation
Posted by David Smith at 10:00 PM
Category: Thoughts and responses

In a speech in Exeter, Mervyn King likened the problem of global imbalances to "Sudoku for economists", a new take on the familiar problem of how to get surplus countries, as well as deficit ones, to adjust their behaviour. "At present there is no political mechanism for achieving that consistency," he said. "Finding such a mechanism is urgent. Having narrowed somewhat at the height of the crisis, the imbalances are now widening again."

He also addressed the sharp jump in inflation in December, from 1.9% to 2.9% and was cautious about how long it might take to get back to target. "The rise in VAT back to 17.5% means that CPI inflation is likely to rise to over 3% for a while, or even higher for even longer were energy prices or indirect taxes to increase further," he said.

"Although such price level effects do not constitute a continuing source of inflation, and hence should be temporary, they remain in the official measure of inflation for a full year. Provided monetary growth remains well under control and remember that at present it is undesirably low inflation should return to target in the medium term."

The speech is on the Bank website.