So what changed between the governor's doveish comments when he presented the Bank's May inflation report and his Mansion House speech a month later? Not inflation as measured by the consumer price index, clearly. That fell to 1.5% in May is and still on a downward trend.
Not the producer prices index, which measures inflationary pressure in the pipeline. This shows that despite annual growth of 3%, manufacturers' factory gate prices are increasing by less than 1% a year. Not inflation expectations, a measure of where the public think the cost of living is heading. And certainly not trends in wages, where whole-economy earnings growth is running at below 1% a year.
All this makes Carney's new hawkishness a bit hard to explain, particularly as he has been banging on for months about how the Bank's new macro-prudential tools will enable it to cool down the property market. Forward guidance, his big policy initiative on taking over as governor from
If you want to be generous to the governor, you could argue that he is waving the interest-rate stick in the hope that he doesn't have to use it. There are two other explanations. The first is that the governor knows something we don't. The second is that he is not quite as smart as he thinks he is and is making it up as he goes along.
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