Quantitative Easing is inflationary, and CPI is currently 5%, more than twice the target of 2%, but Mervyn King thinks he can see deflation ahead.
Sir Mervyn King, the governor, said on Wednesday that “inflation is more likely to be below than above the target” over the next two years, implying that the Bank believes more asset purchases will be necessary. The report’s central forecast shows inflation falling to far below the Bank’s 2 per cent inflation target towards the end of 2013, the forecast horizon the MPC considers when deciding whether or not to conduct further quantitative easing. (Link)This is all very reassuring. Well, it would be, if back in August 2009 King hadn't said this:
"With Bank rate following the market yield curve and a stock of asset purchases of £175bn, inflation is more likely to be below the target than above it in the medium term." (Link)So basically he hasn't a clue what he's talking about. Obviously he knows he hasn't a clue, which rather raises the question as to why he's printing money with such gay abandon? Surely, if you're uncertain as to the future, the watchword should be caution?
Apparently not: print and be damned.
(Mervyn King will retire in 2013 with an RPI-linked pension.)