When Inflation Is Good Economic News

by: Tim Iacono

As expected, earlier today, the Bank of England decided to leave short-term interest rates unchanged at the freakishly low level of 0.5 percent in an effort to help revive the economy. Robert Miller of the Telegraph's Business Bullet joins rank and file economists in lauding the continued presence of inflation, rather than its evil alter ego - de-flation.

Official, government reported in inflation in the U.K is currently running at +3.2%. They'd give their eye-teeth for that kind of a number in some other parts of the world as warnings of a deflation "death spiral" continue - apparently any number with a minus sign, no matter how small, is cause for alarm.

More details of the BOE decision come in this story at The Telegraph - the central bank is now working diligently, trying to figure out how best to spend that £75 billion of newly created money, also aimed at reviving the economy.

Under the scheme, the Bank is creating money and using it to buy £75bn worth of bonds – mainly government debt – in its first three months of operation.

When it was first unveiled, the Bank indicated that it was prepared to spend a further £75bn if deemed necessary.

The Bank's decision to turn to ammunition beyond the conventional tool of interest rates comes amid expectations that the UK economy contracted at a similar pace in the first three months of the year as the final quarter of 2008.

In a Reuters poll published on Thursday, more than 40 economists forecast that the UK economy would shrink by 3.6pc this year.

The median estimate was much worse than the 3pc drop they expected just a month ago, although better than the 3.8pc contraction forecast by the International Monetary Fund.

A growth rate of almost -4 percent with inflation at more than +3 percent is not a healthy combination. Of course, not much about the global economy is very healthy these days.

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