One of the abiding sins of journalists is to treat the subjects of their articles as if they were stupid.
So let me say from the outset that the men (no women) of the Monetary Policy Committee who will meet this week at the Bank of England to discuss their latest decision on interest rates are not stupid.
In that corner of the City this Wednesday and Thursday will be found one of the heaviest concentrations of brains anywhere in the country, if not the world. If there is one thing this lot are not short of, it is intellectual firepower.
What it does not mean, of course, is that they can foresee the future, individually or collectively, but I doubt anyone is able to say where world commodity prices will go this year.
The jump in the price of oil and the rest is the source, together with VAT and duty hikes, of much of the current inflationary spike, and the consensus, for now, is that commodities are soaring and will continue to do so. They will. Yet common sense also tells us that they cannot continue to rise at their present rate indefinitely, because the very fact of booming commodity prices tends to choke off demand, either naturally, because firms cannot pass on the increases in their costs indefinitely, or because central banks take pre-emptive action to deal with the incipient inflation. To that extent, rising commodity prices are a self-correcting phenomenon. They burn themselves out — provided they don't spark an independent inflationary cycle domestically.
Yet journalists, just like economists, are herd creatures, prey to conventional wisdom. Thus if oil is $90 a barrel, as now, then $100 cannot be far off, we tell ourselves. And if $100 is weeks away then surely $200 must be only months off. And perhaps then $300 is only a matter of time. And so on.
None of these hypothetical levels are inevitable, though, or sustainable.
Ironically, given all the hype about the wonderful new economies in the east, inflationary spirals in India and China are a much more realistic danger than they are in the West, including Britain.
Booming commodity prices might not long outlast such events. And everyone would |ask why the Bank of England didn't see the bursting of |the Chinese bubble coming.
CPI inflation may well go higher than the 3% to 4% range the Bank sees it peaking at this spring, and in February, in the next Inflation Report, the Bank will have the tricky task of explaining why it is doing nothing to raise interest rates this month or next — while the Bank's forecasts for CPI inflation have to be revised upwards yet again towards the 4% to 5% range in a few weeks.
The Bank will have a lot of explaining to do. Yet the point stands that there is nothing that can be done now to stop the spike. Nor, more controversially, should anything have been done before — just think how barmy it would have been to raise rates last spring, when the economy seemed poised on a “double dip”.
To me the most powerful argument is that inflation would be half where it is now had VAT not been put back up in January last year, and inflation would be falling fast if the Government had not decided to raise VAT again this January. The annual CPI rate would, in November, have been 1.6% — below the official 2% target. True, it will resume an upward trajectory later on, but there should be rather less excitable talk of loss of control.