Bank Of England Joins The Fed In Warning Of ‘More Pronounced’ Inflation

Following other central banks around the world, the Bank of England is predicting more inflation even as it maintains an aggressive monetary policy regime.

As reported by The Daily Wire last month, the Federal Reserve Bank of the United States refused to amend its near-zero interest rate target or taper its $120 billion monthly asset purchases — both of which are intended to increase the money supply — despite rising price levels. Fed Chair Jerome Powell, however, told Congress that inflation “has increased notably and will likely remain elevated in coming months before moderating.”

Central bankers in England followed a similar course.

CNBC explains:

Policymakers unanimously decided to keep the Bank’s main lending rate at a historic low of 0.1%, where it has been since March 2020, and voted 7-1 to maintain the quantitative easing program at £895 billion ($1.25 trillion).

The central bank also raised its inflation forecasts, as expected by economists, following two consecutive months of above-forecast readings.

“Overall, Bank staff now expect inflation to rise materially further in the near term, temporarily reaching 4% in 2021 Q4 and 2022 Q1, 1½ percentage points higher than in the May projection,” the bank said in its monetary policy report.

The Bank’s Monetary Policy Report said the temporary rise in the consumer price index is primarily due to rising energy and other goods prices, which are set to moderate in the medium term to bring inflation back toward its 2% target.

Both leading central banks’ decisions to avoid amending their monetary policy come as the International Monetary Fund noted that inflation — if ignored in the long-term — poses a serious risk to the global economy. 

In its most recent World Economic Outlook, the IMF — which exists to promote global monetary security — predicted a 6% global GDP recovery in 2021, but nevertheless warned that central banks ought to take seriously the idea that high inflation is more than temporary:

Clear communication from central banks on the outlook for monetary policy will be key to shaping inflation expectations and safeguarding against premature tightening of financial conditions. There is, however, a risk that transitory pressures could become more persistent and central banks may need to take preemptive action.

Unchecked inflation could thereby dampen the global recovery, particularly in emerging regions:

Financial conditions could tighten rapidly, for instance from a reassessment of the monetary policy outlook in advanced economies if inflation expectations increase more rapidly than anticipated. A double hit to emerging market and developing economies from worsening pandemic dynamics and tighter external financial conditions would severely set back their recovery and drag global growth below this outlook’s baseline.

Earlier this week, Federal Reserve Board of Governors member Christopher Waller provided one of the first hints that American officials have their eyes on a taper in the near future.

“In my opinion, that’s substantial progress and I think you could be ready to do an announcement in September,” explained Waller in reference to the recovering economy. He added that if the next two jobs reports “come in as strong as the last one, then I think you’ve made the progress you need.” If they do not, “then you’re probably going to have to push things back a couple months.”

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