BOE MPC’s Mann:Data suggest trade-off in terms of rising inflation vs deteriorating income

BOE MPC member Catherine Mann is speaking. . She says:

• income data suggest increasingly stark trade-off in terms of rising and persistent inflation vs. deteriorating real income
• UK’s exposure and the sensitivity to global spillover could exasperate the inflation activity trade-off
• incoming data on  inflation 
  Inflation
  
  Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.
  
  Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.
  Read this Term show increasing domestic embeddedness, persistence and momentum
• countervailing factors importantly and increasingly are likely to support consumption spending in the near term
• a robust policy move would reduce risk that domestic inflation already embedded is further boosted by inflation imported via a sterling depreciation
• domestic conjunctural situation is characterized by very high inflation
• if the Fed tightens at the currently expected pace, and ECB musters an increase soon, the scenarios outlined above suggest additional depreciation pressure on sterling
• given the likely double-digit inflation, being mindful of the near term implications of the global factors for inflation is particularly relevant
• a 50 basis point move reduces risk of domestic inflation being boosted by weaker sterling
• I open the door to a policy rate reversal in the medium-term when the domestic supports to demand fade and when weakness in external sources of demand bite
• For the UK data shows that a US tightening has been inflationary rather than disinflationary
• it is important to react in a timely fashion to a US monetary policy shock that causes the UK price level to jump