Mervyn King delivers the latest Inflation Report from the Bank of England and focuses on the strength of two forces:
1/ The tailwind of the policy stimulus from monetary and fiscal policy
2/ The headwind of the continued deleveraging in the financial system
It is a good analogy to use and one that students should be able to latch onto as they grapple with their macroeconomics.
This BBC news video provides a good overview of the Bank’s current thinking. In it the Governor explains why the Bank will - for the third time - expects to write to the Chancellor to explain an inflation overshoot. And he comes out with a good quote “Monetary policy can do little to affect short-term changes in inflation” ....... instead it has more leverage on the growth of total spending in the economy which (relative to the supply-side capacity of the economy) affects demand-pull inflationary pressures during the economic cycle.
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