mardi 10 mars 2015
BoE McCafferty: UK Inflation to 'Flirt' With Zero in February
Posted on 14:07 by nice news
Speaking today at the Durham University Business School about the impact of cheap oil on inflation and monetary policy decisions, McCafferty said “such price-level shocks affect the price level permanently, but have only a temporary effect on the rate of inflation.”
“The typical prescription for monetary policy, therefore, is to accommodate such shocks – that is, to look through them in setting policy. And indeed, we have done as much in the past – as recently as a few years ago, when rising oil prices contributed to pushing inflation well above the target,” McCafferty said.
He further reiterated that “inflation is expected to flirt with zero this month and next, and remain well below the 2% target for the rest of the year.”
McCafferty also argues that cheap oil should increase demand which should, in turn, generate upward price pressures.
But he also warned against adverse effects stemming from significantly low near-term inflation such as “the risk that inflation expectations might drift down and become de-anchored, giving rise to disinflationary pressures.”
There is also “the risk of more persistent disinflationary pressure, caused by shifting inflation expectations and hence wage and price-setting behaviour,” McCafferty said.
“As inflation hovers close to zero, there may be less upward pressure on pay settlements, with households possibly willing to accept smaller nominal wage increases in the face of such very-low headline inflation. Such behaviour would prolong the period of inflation undershoot, requ
“The typical prescription for monetary policy, therefore, is to accommodate such shocks – that is, to look through them in setting policy. And indeed, we have done as much in the past – as recently as a few years ago, when rising oil prices contributed to pushing inflation well above the target,” McCafferty said.
He further reiterated that “inflation is expected to flirt with zero this month and next, and remain well below the 2% target for the rest of the year.”
McCafferty also argues that cheap oil should increase demand which should, in turn, generate upward price pressures.
But he also warned against adverse effects stemming from significantly low near-term inflation such as “the risk that inflation expectations might drift down and become de-anchored, giving rise to disinflationary pressures.”
There is also “the risk of more persistent disinflationary pressure, caused by shifting inflation expectations and hence wage and price-setting behaviour,” McCafferty said.
“As inflation hovers close to zero, there may be less upward pressure on pay settlements, with households possibly willing to accept smaller nominal wage increases in the face of such very-low headline inflation. Such behaviour would prolong the period of inflation undershoot, requ
BoE McCafferty: UK Inflation to 'Flirt' With Zero in February
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