At the Bank of England, there’s inflation, and then there’s inflation.
Rate setters presented a curious picture on Thursday. On the one hand, officials cut their inflation forecast, and suggested they may need a bit more time to get the rate back up to the 2 percent target. That would suggest the economy needs a bit more help, but weirdly, they didn’t discuss adding stimulus and focused all of their discussion on whether rates should rise.
For Governor Mark Carney, core inflation tells you what you need to know, and he said in a Bloomberg Television interview that it’s something he’s watching.
“My personal view is it is important that we look at it. Particularly because of this imported disinflation, it shows up through core inflation.”
The key is for the Bank of England to avoid getting behind the curve because one-off factors that are keeping a lid on price pressures can drop out pretty quickly.
“What we want to avoid is to have cost pressures build up too much domestically to the extent that once these foreign factors ultimately pass through the economy, we’re overshooting that inflation target because of domestic strength.”