'Noflation' exposes limits of quantitative easing globally

CALL it "noflation". Consumer prices everywhere are stubbornly refusing to rise even after central banks have pumped trillions of dollars into the global economy via quantitative easing. Figures published on Tuesday show that annual consumer prices were stagnant in the UK last month, the 20th consecutive report that's missed the Bank of England's 2 per cent target. QE, it seems, isn't the economic panacea it promised to be.

Here's how UK inflation has performed in the past five years: If UK monetary policy makers didn't raise rates in 2011 when the average annual inflation rate was 4.4 per cent, or 2012 when it was 2.9 per cent, or 2013 when it was 2.6 per cent, or 2014 when it was 1.5 per cent, why on earth move in 2015 - when it's been 0.1 per cent? There's a yawning gap between waiting until you see the whites of inflation's eyes and pulling the trigger when prices are dead in the water.

Discussing higher borrowing costs when there's no evidence of inflation seems crazy to me. Yet, writing in The Scotsman newspaper on Sept 13, Monetary Policy Committee member Martin Weale suggested he'd be willing to raise rates (the MPC next meets on Oct 8) even if subsequent economic data prompted a U- turn: It is possible that, if events turn out very differently, a path of gradual rate rises might have to be reversed somewhat. For me, a fear of costs associated with such a change of direction should not lead us to hold back from changing bank rate.