Inflation worriers are fretting about the wrong thing
A letter in Tuesday’s FT fretted about the perils of inflation, a disaster coming this way soon, it argued.
The economists who wrote it – bright lads all – might be described as, erm, “independent”. Outside the City mainstream, anyway.
That doesn’t make them wrong, indeed the track record of mainstream City economists is about as good as Tottenham’s in Europe (the odd minor trophy, otherwise just lots of self-important noise).
But they still look to me like they are worrying about the wrong thing.
Professors Tim Congdon, Kent Matthews, Trevor Williams, along with Julian Jessop and Andrew Lilico fear that “inflation above 5% is likely at some point in the next few years.
They believe “the Bank of England will be to blame for this setback”, due to the reckless (my word) quantitative easing on Threadneedle Street.
Well, perhaps. But today inflation stands at 0.7%, up from 0.4%, but still below where it should be.
At present, the problem with inflation is that there isn’t enough of it, hence the Bank’s attempt to spaff money into the system.
What the experts would say is that the trouble with inflation is that once it gets going, it is hard to stop. But the trouble with economic growth is that if you cut it off at the knees, you fall over.
The Profs are surely worrying about the wrong thing.
If inflation does go past the Bank’s target of 2% later this year, that’s a result – a sign that the UK has decisively turned the Covid corner.
At the worst, it would be a nice problem to have.
