Charles Goodhart
speaker
39 appearances
1 recordings
1 series
first heard Dec 2010
last heard Dec 2010
Charles Goodhart’s voice in public audio — every appearance, attributed to the second.
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Appearances
The problem was the stability that we had in the macroeconomic system.
was such that it led everybody in the financial system to take much greater risks because they thought the risks had been reduced.
And effectively what we learned there was that you actually need an additional set of instruments to achieve financial stability as well as price stability.
But the idea that you should get away from trying to manage and achieve an inflation target is just wrong.
The answer to that one is yes and no.
And essentially what has been happening is that the reason why the inflation rate is just over 1% higher than the target is very largely the previous government and now this government have been putting up VAT, indirect taxes.
And when that falls out of the system, the inflation rate will tend to go back down.
The problem
why I said yes or no is the bank's own forecasts have been underestimating the rate of inflation, not a huge amount, but a little bit, more or less month by month by month.
And there are some people who are worried that the bank is putting excessive trust in the belief that there is sufficient competitive pressure in the economy and sufficient slack and spare resources.
that when the indirect taxes fall out of the annualized inflation figure, that everything will go back down to 2% fairly quickly, or even under.
And it's the latter that perhaps it won't fall back as much as the bank has thought, because they've been continuously underestimating over the last year what the inflation rate would be.
That is causing a little bit of concern.
Well, I think one does have to wait a fair period of time because, like all economic series, there are various blips that cause things to go up.
And apart from the VAT changes, there are various factors such as energy and food prices that are pretty volatile and don't necessarily reflect what is going on in the domestic economy, which is the more important and underlying determinant of inflation.
One of the concerns is that because of spare capacity in the major developed economies, the expansionary monetary policy that most of us have in the US, UK and Eurozone are actually feeding through into generalized inflation in commodities and in energy.
So that the commodities and the energy are not just purely, if you like, supply-side blips that we can disregard.
They themselves can be influenced negatively.
by the monetary policies of the developed economies.
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