Overdone medicine

27 March 2012 By Ian Campbell

Quantitative easing helped head off disaster. But now the U.S. and the global economy are recovering – despite continuing euro trouble – the danger is inflation. Oil and some other commodities are already up. Consumer prices will be a problem if policymakers fail to get a grip.

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Masaaki Shirakawa, Governor of the Bank of Japan, warned on March 27 about the danger of more central bank buying of government debt. He said that “if the central bank’s purchases of government debt is taken as a step aimed at funding public debt, that would lead to a spike in long-term interest rates at some point.”
Spencer Dale, the Bank of England’s chief economist, warned on March 20 that inflation in the UK might not drop as fast as the bank hopes. “Domestic cost and price pressures may fall by less than anticipated,” he said. “One obvious worry,” he added, is “that tensions within the Middle East could escalate and put further upward pressure on oil prices.”

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