Bank of England inflation report: Behind the gobbledy-gook

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by George Kerevan

THE latest Bank of England quarterly inflation report, published today, makes grim reading. Let’s start with the exact wording of the report’s summary. I’ll translate later. If you get lost in the prose, don’t worry. It’s designed to mislead you, or at least put you to sleep.

Here’s what they said:

“CPI inflation is likely to pick up to between 4% and 5% in the near term and to remain well above the 2% target over the next year or so, reflecting in part the recent increase in VAT. The near-term profile is markedly higher than in November, largely reflecting further rises in commodity and import prices since then. Further ahead, inflation is likely to fall back, as those effects diminish and downward pressure from spare capacity persists. But both the timing and extent of that decline in inflation are uncertain. Under the assumptions that Bank Rate moves in line with market interest rates and the stock of purchased assets financed by the issuance of central bank reserves remains at £200 billion, the chances of inflation being either above or below the target in the medium term are judged to be broadly balanced.”

So what does this gobbledy-gook actually mean?

Report: “CPI inflation is likely to pick up to between 4% and 5% in the near term”.
Translation: Even if we measure inflation by missing out important stuff like energy prices and mortgages (the CPI thing) we are still looking at prices going up even faster over the next few months.

Report: “inflation…to remain well above the 2% target over the next year”.
Translation: We’re supposed to hold inflation to 2% but we’ve not done so for years, so why worry now. At this rate, the value of ordinary people’s savings will be halved in less than a decade but at least the National Debt will be smaller, and David Cameron can get re-elected. Ooops! Didn’t mean to let the cat out of the bag.

Report: “The near-term profile is markedly higher than in November”.
Translation: Things have got markedly worse since our last guess in November. Sadly, despite paying ourselves bundles here at the Bank of England, we’ve not a clue what is going on.

Report: “Further ahead, inflation is likely to fall back”.
Translation: If we wait long enough – five or ten years, say – things might improve. But don’t hold your breath.

Report: “…inflation is likely to fall back as those effects diminish and downward pressure from spare capacity persists”.
Translation: The reason we know inflation has to fall eventually is because the economy is so b*****ed, and unemployment is so high, no one is buying anything.

Report: “But both the timing and extent of that decline in inflation are uncertain”.
Translation: We haven’t a scoobie what’s going on. But we’re not resigning.

Report: “Under the assumptions that Bank Rate moves in line with market interest rates”.
Translation: Assuming we do what the spivs and speculators in the City tell us to do, and raise interest rates soon (thus bankrupting small firms and putting up mortgage payments).

Report: “Under the assumptions that…the stock of purchased assets financed by the issuance of central bank reserves remains at £200 billion”.
Translation: And assuming we don’t print even more money (a sure way of making inflation even worse) to keep the Treasury afloat.

Report: “[then] the chances of inflation being either above or below the target in the medium term are judged to be broadly balanced”.
Translation: Then if you flip a coin, it will come up heads or tails.

Or put another way, the sooner Scotland becomes independent and runs its own economy, with its own central bank, the better.