Monetary Policy Committee: Inflation

Debate between Lord Deighton and Lord Davidson of Glen Clova

Wednesday 13th February 2013 Lords Chamber

[Lord Deighton]

My Lords, I could not agree more with the noble Lord’s observation. There is nothing more insidious than inflation, which is why sticking to our inflation-targeting mandate, which the independent Monetary Policy Committee pursues with great skill and judgment, is absolutely the right thing to do.

[Lord Davidson of Glen Clova]

My Lords, given the objective that the MPC is set by Her Majesty’s Treasury, how does the Treasury propose to modify the inflation rate target, since it appears that it needs to accommodate Mr Carney’s new desire for flexibility? Or—harking back to something that has already been said—is it that the flexibility already exists because it accommodates the Bank of England’s failure for more than two years to meet its statutory inflation target?

[Lord Deighton]

My Lords, it is extremely clear from the MPC’s own minutes how it treats that trade-off. With the House’s indulgence, I will read the most appropriate lines:

“The Committee discussed the appropriate policy response to the combination of the weakness in the economy and the prospect of a further prolonged period of above-target inflation. It agreed that, as long as domestic cost and price pressures remained consistent with inflation returning to the target in the medium term, it was appropriate to look through the temporary, albeit protracted, period of above-target inflation”.

That is the perfect mandate for flexible inflation targeting.