I always enjoy reading Bank of England Governor Mervin King speeches.

His recent speech was very interesting as well, as King dismissed global inflation agenda and explained that inflation is a monetary phenomenon. Take a look:

“…The explanation is that inflation is the result, in the old adage, of too much money chasing too few goods. Inflation arises when the total amount of money spending (or nominal demand) in the economy is greater than the value today of the available goods and services. When the Bank of England changes Bank Rate to keep consumer price inflation close to the target of 2%, we influence – albeit imprecisely and with a time lag – the amount of money spent in the economy and so the inflation rate. In short, inflation is made at home. …”.


“… Monetary policy – a credible commitment to the inflation target and a broadly stable growth of total money spending – was then, and is always, the key to low and stable inflation….”

This speech is yet another sign that money is making a come-back into central bank inflation thinking. One may find it a bit surprising, when ECB focuses communication on anchoring inflation expectations under 2-pillar strategy, and BoE talks about money under direct inflation targeting strategy, while the other way around would seem more natural. This would be wrong impression, money and asset prices are becoming an important part of monetary policy agenda, just to mention US “lot of housing bubbles” and global imbalances.

Merving King also explains how the MPC makes decisions:

“… It is highly appropriate that I have been talking this evening about the recent decisions of the Monetary Policy Committee in the shadow of King Arthur’s Round Table. For the Round Table symbolised the equality of the knights. To quote one authority, “there is no head of the table at a round table, and so no one person is at a privileged position.” Equally, the Monetary Policy Committee comprises nine members, each with one vote, and the decision is determined by a majority of those votes rather than by consensus. No individual has a monopoly of wisdom and the pursuit of a consensus may hinder the discovery of the truth. Of course, I would not claim that the Bank of England is the longlost site of Camelot, nor that meetings of the MPC are characterised by jousting and feasting. But I hope you can see that in its deliberations, the MPC has adopted the spirit, if not the literal shape, of the Round Table. …”