Inflation risks tilt to 'upside' says former BOE governor Mervyn King

[LONDON] Inflation risks are growing around the world, and it is easier to see prices headed higher than forces that may bring them down, said former Bank of England governor Mervyn King.

"Central banks are really worried about inflation now," Mr King said in an interview on Bloomberg TV. "It's a lot easier to see upside risks to inflation than downside risks."

A series of structural changes in the economy in the UK mean that setting monetary policy will be difficult in the next few years, Mr King said. He recommended policymakers scrap the forward guidance they give on how the outlook will evolve, keeping their options open to move as needed.

Offering guidance has been a "big mistake in the last few years", Mr King said on Thursday. The risk is giving guidance on future policy makes central banks reluctant about changing tack when need, he said.

"The important thing now is not to pretend that we know what's going to happen in the future but to demonstrate that central banks are willing to respond very quickly" if upside risks to inflation materialise, he added.

Central banks around the world are grappling with surging prices as the economies emerge from coronavirus lockdowns and energy prices spike. While most have said they expect price gains to prove transitory, more economists are expressing concerns they may be becoming entrenched.

BLOOMBERG