LONDON (Reuters) -Bank of England (BoE) Deputy Governor Ben Broadbent said central banks should not ignore measures of money supply but claims that their quantitative easing (QE) bond-buying programmes led to excessive inflation are not backed up by evidence.
Some politicians and analysts have blamed the huge sums of central bank money created by the BoE and other central banks since the 2008 financial crisis, and more recently during the COVID-19 pandemic, for the recent surge in inflation.
British consumer price inflation hit its highest in more than 40 years in October at 11.1%, and remained above 10% in the most recent data for March.
Broadbent – in line with recent BoE statements – said supply-chain disruptions caused by the pandemic and the surge in natural gas prices after Russia’s invasion of Ukraine in 2022 were clearer causes of the jump in prices than money supply.
“As an explanation for the inflation we’ve experienced I think this fits the actual data better than the single fact of strong household money growth during the pandemic,” he said in a speech on Tuesday to the National Institute of Economic and Social Research, a think tank.
Some economists have accused the BoE, U.S. Federal Reserve and the European Central Bank of missing signals from an increase in money supply that should have served as warnings of the risk of rising inflation.
“In major economic areas, money supply growth was running at rates which would have set the alarm bells ringing not many years earlier. But somehow central banks thought that this did not matter,” Roger Bootle, the chairman of consultancy Capital Economics, wrote in the Telegraph newspaper on Sunday
Broadbent said the BoE did not ignore money supply, but said it needed to be kept in context with other economic variables, and that quantitative easing in practice was different to the ‘helicopter drop’ of money found in economic text books.
“No monetary policymaker should ignore information that’s relevant for future inflation. That includes the monetary aggregates,” he said.
“But like most economic data they need interpretation. Certainly the very strongest claims – that QE inevitably leads to rapid growth of commercial bank deposits (M4), on a par with that in the central bank’s balance sheet, and that this, in turn, inevitably leads to excessive inflation – are not well supported by the evidence.”
(Reporting by David Milliken and Andy BruceEditing by William Schomberg)
