Saturday, 2 June 2007

More bad news on inflation

The last rate rise was not enough. Inflationary pressures remain strong, and if the Bank of England want to get on top of the problem, then further significant rate increases will be needed.

The latest bad news came from the the Chartered Institute for Purchasing and Supply. Their latest survey reported the fastest growth in production in eight months. Furthermore, companies reported that prices are rising more strongly than at any time since the survey was launched seven-and-a-half years ago.

The Bank's monetary policy committee are in a tight spot. It is rapidly losing credibility. Its reluctance to raise rates is undermining their purported claims to be tough on inflation. The most damning indictment comes from recent money supply data, which is growing at double digit rates.

The committee meets next week. If it is serious about inflation, it has only one option; raise rates again.

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