The Genie is out of the bottle: UK's Central Bank has overshot inflation target for seven months straight

The monetary malfeasance otherwise known as Quantitative Easing is not going over too well in the UK.  They have a Central Bank which is practicing some of the same things that we practice in the US, with asset purchases, which temporary boost asset prices and give banks a favorable exit price for their balance sheet. 

It also leads to asset inflation, which can carry over into price inflation, and have other unintended consequences like asset bubbles. 

Via Bloomberg:

When the Bank of England’s Monetary Policy Committee meets this week, attention will be focused on whether it will announce another round of quantitative easing.

The U.K. central bank should forget about printing more money through the purchase of securities. That is the last thing the economy needs. Instead, it should concentrate on the real problem: an inflation rate that is fast getting out of control.

The bank is mandated to reach a target of 2 percent. It isn’t anywhere close to that. Inflation has exceeded the government’s 3 percent limit for the past seven months.

The situation is only going to get worse. There is no persuasive evidence that quantitative easing, also known as QE, has done anything other than boost asset prices. And the emergency that prompted the need to ease is over: The economy is in good enough shape, thanks to the depreciation of the pound and low borrowing costs, to make restraining prices a top priority once again.

The U.K. should avoid revisiting its inflationary nightmare of the 1970s. It has to do something to reverse the trend soon or it will be too late. During the financial crisis, the inflation rate reached 5.2 percent as central banks flooded the market with cash. The conditions no longer warrant such action even if the government’s budget squeeze lowers demand somewhat.

...The official figures -- even though they are far from perfect -- make clear what is happening to the British economy. The Office for National Statistics reported last month that consumer prices rose at an annual 3.1 percent rate in September. No one expects that goal to be reached every month. But breaching the government’s limit for seven straight months suggests that something is seriously wrong.

Dig a little deeper into the figures and the picture is even more alarming. Retail prices, a measure used by wage negotiators, surged 4.6 percent in September. Some categories of goods gained even more. Prices of clothing and footwear, for example, jumped 6.4 percent. A packet of butter that cost 1 pound ($1.60) a year ago now costs 1.22 pounds, according to the official figures. An orange now costs 36 pence compared with 27 pence a year ago. A cauliflower costs 91 pence compared with 79 pence. These are big price increases, the sort that people notice when they go shopping every week.


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