Charles Bean, MPC member and deputy governor for Monetary Policy, has made a speech discussing the causes of high inflation, whether it will persist and the appropriate monetary policy for the United Kingdom.
Bean has attributed the substantially higher than expected level of inflation to three primary causes: strong global pressure on commodity prices, sterling’s depreciation and the VAT rise to 20%.
Unless the uenxpected occurs, Bean has forecast that large harvests will lead to a reduction in prices, but that oil and metal prices will remain at an elevated level.
Bean also opined that the depreciation of sterling had a great impact than the MPC had predicted.
Inflation could be stabilised, but at the cost of introducing volatility to output, he warned, and he went on to say that inflation would fall back in 2012.
Yesterday the ECB decided to leave unchanged the eurozone’s record low interest rate of 1%, although speculation has arisen regarding the possibility of a future rise in the single currency’s interest rate.