UPDATE 1-BoE’s Posen-not worried about temporary CPI overshoot

(Updates with additional comments by Posen)

By David Milliken

LONDON, May 24 (BestGrowthStock) – It is better to overshoot the
inflation target temporarily than risk deflation later, Bank of
England Monetary Policy Committee member Adam Posen said on

Posen’s comments after a speech at the London School of
Economics suggest the policymaker is not unduly worried by the
latest jump in inflation which in April hit 3.7 percent, nearly
double the central bank’s 2 percent target.

His colleague, Kate Barker, who leaves the MPC at the end
of this month, was also quoted as saying in Monday’s Financial
Times that the rise in inflation was likely a result of
temporary factors.

“We may not have done it (monetary policy) perfectly right
— we are overshooting our target a bit — but I’d rather
temporarily be missing the target by 1 percent on the upside
than be facing deflation,” Posen said.

But some other MPC members are clearly getting more worried
about high inflation, which has repeatedly surprised on the
upside, when policy is so ultra-loose.

The Bank of England cut interest rates to a record low of
0.5 percent last year when it also embarked on a 200 billion
pound asset pound asset-buying or quantitative easing programme
in order to boost the recession hit economy.

Growth has now resumed but few analysts expect the central
bank to tighten policy until the fourth quarter of this year.
In any case, analysts believe policy will have to be on hold
until the emergency budget on June 22, when fiscal policy is
expected to be tightened aggressively.

Earlier, Posen’s speech focused on Japan’s “lost decade” of
growth between the 1990s and 2000s and the lessons to be learnt
from that for Britain and other countries.

Posen argued that the decade of lost growth in Japan was a
result of avoidable macroeconomic and financial policy

He said there was a low risk of either the British or U.S.
economy “turning Japanese” in this sense but deflation was
still a possibility.

“The UK worryingly combines a couple of financial parallels
to Japan with far less room for fiscal action to compensate for
them than Japan had,” he said, according to the text of his

“More active investors and greater openness in the UK than
in Japan may be able to turn this around.”

He also highlighted the ongoing risks faced by the economy,
particularly as the fiscal crisis in the euro zone continues to

While there has been much hope that the UK economy would
rebalance toward more export-oriented growth, this need comes
at a time when a number of countries will be competing for
market share.

“Not everyone can be a net exporter at the same time,”
Posen said. “Second and more pressingly, the UK’s major export
market remains the euro area.”

“Let us just say that the prospects for strong growth in
most of the euro area are rather dim for the next several
years, as are the prospects for a sustained relative price
adjustment by the UK against the euro area.”

Stock Investing
(Writing by Mohammad Abbas and Sumeet Desai; Editing by
Kenneth Barry; Reuters messaging:
[email protected]; +4420 7542 7708))

UPDATE 1-BoE’s Posen-not worried about temporary CPI overshoot