There is no pain-free means of returning inflation to its 2% target, says Monetary Policy Committee member Paul Fisher.
In a speech delivered today, he says the persistently high rates of Consumer Prices Index inflation over the past two years have been caused by real price shocks in VAT, global commodity prices and the fall in sterling.
Speaking at The Global Borrowers & Investors Forum in London, Fisher says there is no simple solution to these price shocks, and that changing the MPC’s remit or the inflation target would not magic away the problem.
He says: “The MPC are trying to set the best path back to the inflation target, but even the best path is an extremely uncomfortable one.”
Fisher adds that if the MPC had tightened monetary policy this would only have injected more volatility into inflation.
He says: “The unfortunate and difficult truth is that the shocks that have hit the economy recently have not been caused by monetary conditions.
“They are real economy shocks which make us individually and collectively worse off – we have to pay more tax and we have to pay more, in real terms, for petrol, gas, electricity and imported goods or services.”