Rising inflation has come to affect monetary deployed strategies in all nations where their struggle with the aftermath of the credit meltdown and the US slowdown which left softness in their economies is agitated further by rising inflation and they are surely in tight spot to maneuver slowing growth.
Central Banks from across nations have expressed their fears, and today will be the point we devour what the MPC was deliberating in their last meeting where they left rates unchanged. The balancing act for the BoE is getting harder with a slowing economy and rising inflation that in May hit 3.3% and King had to address the Chancellor with the developments.
The split among members is seen among the MPC members, as last meeting Blanchflower the arch dove voted for a rate cut, and probably he withheld his stance this meeting as well. While the other 8 members are supposedly on hold except if some of them preferred to address a three-way split once more and preferred a rate hike to anchor inflation!
Inflation is to remain above the target into 2009 where this year it will peak near 4.0% in the third quarter, while if energy and food prices abide the BoE is still fearing inflation expectations which might trigger second round effects into materialization.
Headline inflation as Darling expressed regarding inflation that it's nearly moderate compared to similar scenarios seen in the 1970s and 1980s. So that leads us to question whether the BoE is to tolerate much more rising inflation affecting price stability over the medium-term, and will other central banks do so as well???
The ECB expressed their rigid stance towards inflation that peaked at 3.7% in May as he used a new phrase in his press conference to express the POSSIBILITY of a rate hike in July by saying the Governing Council is in a state of heightened alertness and since growth in the EU is mainly now being suppressed by slowing consumption due to rising prices that stance is acceptable.
As for the Feds they are glad their economy escaped the grave yet still its now resting in the ICU and an inflation induced shock will surely threaten it with cardio-arrest shall those fears materialize, and for that they have halted their easing policy and adopted the wait and see approach as inflation creeps into the economy, and markets expects them to move in hiking rates sooner than before assumed end of year to now an August hike.
Surely inflation is affecting the balance and now the ball is in the commodities court, will their strong bullish wave halt or will new record highs continue on a break that is the sentiment of all policy makers now and surely all now favor a stronger dollar to the rescue which is still not assured to happen!!!