Comments: Shadow MPC's divisions grow

Interesting comment from Professor Patrick Minford above who suggests an immediate 0.5% drop in interest rates.

"As I have said before, the new environment is one where central banks have credibility for their intentions to keep inflation down; this credibility is the result of a change in popular attitudes to inflation - no one believes that inflation does good any more, so central banks face no political difficulties in keeping it down."

SO CENTRAL BANKS FACE NO POLITICAL DIFFICULTIES IN KEEPING IT [INFLATION] DOWN?

Sounds rather naive to me, and I'm sure Jean-Claude Trichet (ECB president) would agree. Just look at the grief he as had.

Interesting too that he offers growth targeting as a means of justification for a interest rate drop. Mervyn King has countless times reinforced the banks mandate of interest rate targeting:

"I think a number of people in the last six months have been talking as if the [interest rate setting] MPC targets demand, or even more oddly, retail sales and consumer spending. We are not. We are trying to target inflation. We have an inflation target."

Good old Mervyn stands true. God bless him...

Patrick Minford is a professor at Cardiff Business School. As such he represents a clear vested interest in business growth which appears to a clouded his mind to any upside inflation risk (or even the basic inflation targeting role of the MPC).

You wouldn't ask Halifax if we should drop interest rates and still expect an unbiased answer, would you? They would only be too happy to see a 0.5% drop, regardless of any wider negative effect.

Nevermind.

Werewolves.

Posted by Werewolves at December 5, 2005 01:08 PM

Well said, Werewolves.

Peter Warburton’s reasoning was equally beside the point - focusing on house prices, personal sector indebtedness and the mysterious ‘private sector inflation’.

We’ll have a good idea by next March what the state of consumer spending and wage growth really is and their likely impact on inflation. I’ll be very surprised if the talk isn’t of interest rate rises by then.

Posted by Sandid at December 6, 2005 11:23 AM