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Pill: Inflation Fighting More About Structural View Than Spot Data

BOE

Q: BOE seemed to signal a pause a few months ago, does the MPC place more weight on the path of inflation or a general equilibrium approach?

  • A: We need a structural behavioural view of the economy as alluded to in a previous speech.
  • Focused on persistence in inflation as if we respond to spot inflation, responding to something that has already happened. Need to appropriately steer inflation by weighing on demand.
  • Inflation can be persistent because of being unlucky due to a series of inflationary shocks. There is truth in that - but its not the whole story.
  • Forward looking focus needs to focus on intrinsic behaviour. Must be a structural story, can't just focus on spot inflation or inflation expectations.
  • At the current level of interest rates, think are weighing against inf. And we need to to bring inflation down from current level. So more a structural view than focusing on spot measures of inflation.
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