This is what Lord King Chairman of the Bank of England said in his annual speech to the great and the good of the City of London at the Mansion House almost exactly one year ago on the 16th June 2007...
"Our central view remains that inflation will fall back this year as the rises in domestic gas and electricity prices last year drop out of the annual comparison, and the recent cuts in prices feed through to household bills."
Since then he has had his term of office extended by a further 5 years. Today he wrote a letter the Chancellor of the Exchequer. His letter started rather abruptly and gave hime some information somwhat at variance with his thoughts just a year ago.
The CPI inflation rate for may ..is 3.3% more than 1 percentage point above our target of 2%.
It didn't get any better
That rise can be accounted for by large and, until recently , unanticipated increases in the price of food, fuel, gas and electricity. These components alone account for 1.1 percentage points increase in the CPI inflation rate since last December
Lord King probably mentioned December as Lord Patel as explained in these post wrote to him about his Mansion House speech on the 4th of January 2008..."Should you seek an explanation from Lord King and the BOE how they, and their serried ranks of Oxbridge double firsts in PPE, economists, econometricians, money jugglers, and forecasters so misread the global and (more importantly) the EU energy market you might contact them at email@example.com or even enquiries firstname.lastname@example.org Lord Patel has ... and he will keep you informed of the consequences.
This was mentioned in a post Friday, January 04, 2008 Npower lead the rush with domestic UK energy prices rising over 17% when Npower led the charge putting up the prices of the UK gas cartel. The letter was brief and ..er. ... to the point "Can someone explain how the consistent and constant rise in global and especially EU energy costs had been ignored / overlooked when Lord King made his speech ? Regards Lord Patel PS An early response would be welcome."
Lord Kings reply arrived (eventually) and you can read it here...Friday, February 08, 2008 Lord Patel gets a response to letter to Lord King - eventually ..well a reply from Roger Beaton, Public Information & Enquiries Group which allowed, through the passage of time from Lord Patel's missive to it's reply for Marvellous Mervyn to cover his arse ..."the Governor has already addressed these matters in a speech he gave on 22 January this year. In particular he said “2008 is likely to see higher energy prices, higher food prices and, with a lower exchange rate, higher import prices, pushing inflation above the 2% target. It is possible that inflation could rise to the level at which I would need to write an open letter of explanation, ..." and so it came to pass.
One phrase from Mr Beaton is worth passing on and may be quoted in extenso "There is inevitable uncertainty about the future." ... and so say all of us.
Mervyn ends his leter to the Chancellor today ...
"The MPC remains determined to set interest rates at a level required to bring interest rates at the level required to bring inflation back to the 2% "target"
A pity that Lord Patel's letter did not prompt him and the MPC to an earlier response... he cannot say he was not warned.