THE Bank of England released its quarterly inflation report this morning. It also published the letter from Mark Carney, governor of the bank, to George Osborne, Britain's chancellor of the exchequer, that was required to explain why inflation—currently 0.5%—had deviated more than a percentage point below the bank's target of 2%. According to the report's forecasts, inflation will turn negative in the coming months as a result of the huge fall in oil prices. However, the letter emphasises the short-term, one-off nature of the oil-price shock, which will fall out of the numbers relatively quickly and so requires no offsetting action.
The austerity to come
That is because the IMF already pledged $17 billion back in April, of which only $5 billion has been actually disbursed. In other words, the fund is making good old promises, rather than offering any new cash. Christine Lagarde, the head of the IMF, hopes that by the time other Western donors pile in, Ukraine will get about $40 billion-worth of cash.
SCOTT SUMNER has written a paper for the Adam Smith Institute in which he sets out the market monetarist interpretation of the great recession. Central to this is the "musical chairs" model of unemployment, which he assesses against American labour market data. The musical chairs model says that shocks to nominal GDP—or total spending in the economy—drive unemployment. When nominal GDP falls, there is no longer enough spending to sustain the same number of jobs unless wages fall. Because wages are slow to adjust, unemployment rises instead.