Stagflation Comes to the u.K.

Inflation in the U.K. hit 3.5% annually in January, a level that required central banker Mervyn King to write a letter of explanation to the Treasury. Mr. King lays the blame for the price uptick largely at the feet of specific factors. These include the Jan. 1 increase in the VAT rate to 17.5% from 15%; rising energy prices (although core inflation was also north of 3%); and the weakening pound.

There is truth in all that. But it’s also true that the pound has been weakening in part because the Bank of England spent much of last year printing money and using it to buy government bonds, to the tune of some 200 billion pounds ($313 billion) before the bank’s monetary policy committee suspended the program in December. This quantitative easing was begun in the midst of the financial panic to ward off what some feared was looming deflation. At the time, the Bank cut short-term rates to a record-low 0.5%, and has kept them there ever since.

With rates about as low as they can go, the central bank printing money and the government running a budget deficit of 12.9% of GDP, it’s no wonder the pound has been weakening. The weakness feeds into higher energy prices in sterling terms, along with the price of other imports. But it is also a signal that the authorities are putting too much supply on the market, and driving down the price of sterling. In short, the Bank of England’s easy money and debt monetization are contributing to the “temporary factors” that Mr. King blames for the rise in inflation.

Meanwhile, the number of Britons on the dole hit its highest level in 13 years in January, according to new numbers released Wednesday. The high unemployment together with other measures of “slack” in the economy, such as “spare capacity”, are cited by Mr. King as reasons to believe that inflation won’t stay elevated.

The Wall Street Journal April 2010

Translate the text into Russian: № 11

Imf ties currencies to global growth

The global economic recovery continues to strengthen, the International Monetary Fund said, but growth in the U.S. and wealthier nations in Europe may depend on a depreciation of their currencies compared to China and other developing countries.

As wealthy nations rein in stimulus spending, “demand may be weak and as would net exports,” said the IMF’s chief economist, Olivier Blanchard. “So this implies in general, an appreciation of emerging markets currencies relative to advanced countries’ currencies.”

Mr. Blanchard had China specifically in mind. The IMF’s semi-annual World Economic Outlook, repeated the IMF’s view that the Chinese yuan is “substantially” undervalued. Mr. Blanchard said that allowing the yuan to strengthen would help Beijing shift to more domestic-led growth and reduce the chances that the economy would overheat.

The IMF, U.S. and European nations have long been pressing China to revalue its currency, and Beijing has long resisted the move. But in recent weeks, the U.S. and China have given signals that a small revaluation may be in the works.

Overall, the IMF lifted its forecasts of global growth to 4.2% in 2010. In 2011, the IMF expects growth of 4.3% - a bit slower than average global growth before the financial crisis hit hard in 2007. But the speed of the recovery varies greatly by region.

The fragility of the recovery in most advanced economies suggests that they should continue with already-planned fiscal stimulus measures this year. By next year, the IMF figures that recoveries could become self-sustaining so many countries could begin “significant” reduction in deficits, even as monetary policy remains easy.

The IMF didn’t give specific advice about which countries should reduce fiscal stimulus next year – or how deeply.

The Wall Street Journal April 2010

Translate the text into Russian: № 12