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There is good disinflation—cheaper inputs and improved productivity—and bad deflation—weak demand—and what we're experiencing now seems to be the good kind.
Though the headline rate is 0.3%, Mark Carney's letter to the chancellor will undoubtedly explain that this is due to falling prices of food and fuel imports, which do not risk recession and simply make every Brit better off. Core inflation (which excludes volatile products like food and fuel) is ticking along much closer to target at 1.4%.It is vital for monetary stability and neutrality that the Bank keeps its policy predictable—a rule-based system would be superior to the current system of discretion—but right now policy is roughly where it should be.
For further comments or to arrange an interview, contact Kate Andrews, Communications Manager, at firstname.lastname@example.org / 07476 915072.
The Adam Smith Institute is an independent libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.