IEA - Inflation data shows need to pause rate rises
20 Sep 2023 11:07 AM
Julian Jessop, Economics Fellow at the free market Institute of Economic Affairs Comments on ONS data showing a surprise fall in the rate of inflation in August
“Today’s better than expected UK inflation data show why forecasters and policymakers should pay more attention to monetary aggregates. Inflation was widely expected to jump due to higher fuel prices. In fact, it fell, which is consistent with the sharp deceleration in the growth of the money supply over the last year.
“The Bank of England should have hit the pause button on interest rates several meetings ago to assess the full impact of the tight squeeze that is already in place. Even if the MPC does decide to hike one more time this week, they should signal that rates are then on hold for a long period – and that the next move is just as likely to be a cut.”
Notes to Editors
Monetary aggregates refer to the total amount of money circulating in the economy. Julian wrote for The Spectator last month urging forecasters to pay more attention to the supply of money when discussing inflation: https://www.spectator.co.uk/article/is-printing-too-much-money-the-real-cause-of-inflation/
In the article, Julian highlighted that growth of the money supply had halted:
At their last meeting, the IEA’s Shadow Monetary Policy Committee (SMPC) called for interest rate hikes to be paused to allow the impact of previous rate rises to become clear: https://iea.org.uk/media/abandon-interest-rates-rises-says-shadow-monetary-policy-committee/
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.