Economy: Fears Over Inflation Overblown, Posen Says

BoE's Posen says inflation fears are exaggerated

BoE’s Posen says inflation fears are exaggerated

Adam Posen, one of nine people who sits on the Bank of England’s rate-setting committee, has been urging the Bank to take stimulus measures since last October. Now that it seems more likely that the Bank will resume its policy of asset purchasing in an effort to pump money back into the UK economy, Posen says that rash of fears concerning higher inflation should not stop the quantitative easing.

Inflation “temporary”

Posen stated that Britain’s inflation rate, currently expected to top 5% by the end of the year, can be attributed to “temporary factors” and he is convinced that they will fall.

He also said that inflation should not be over-estimated and fears should be more rational, as the UK has a formula of low wage growth, stable energy prices, and a stable pound to defend itself against a skyrocket in inflation.

“That fear is exaggerated,” Posen said in an interview with the Wall Street Journal, regarding the widespread anxiety among central bankers. “The likelihood of it happening in the current economic environment seems extremely low.”

Posen also said that central bankers often tend “to err on the side of being too tight.”

Calls for monetary easing

Posten also said that allowing the current rate of inflation to influence decisions that will affect the entire global economy does not add up.

“If there’s no wage growth – and there isn’t – and the pound has been stable and the futures markets tell us that energy prices, oil prices, are going to be flatter down the line, then today’s high inflation doesn’t have any forecasting worth for what we should do for next year,” Posen continued.

Posen’s statements come at a time when pressure is increasing on the government and the Bank of England to take measures to push along the struggling recovery.

The Bank of England stated on Wednesday that it is very near to another round of quantitative easing, potentially as soon as October, but more likely in November.

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