Inflation falls in U.K. Bank of England buys debt

July 9, 2009
12:31 p.m.

The disinflationary and even deflationary environment continues .In June the British office of national statistics released data that showed that the consumer price index had fallen in May to 2.2 % down from 2.3 % in April and way down from close to 5 % in September 2008. The retail price index, a somewhat narrower index that excludes both very rich and very poor households from its calculations was actually in negative terrain   -1.1 % from a year ago.In September 2008 it was running at 5.0% over the previous year.
Oil prices which had artificially spiked to 73 $ last week today fell under 60 $ a barrel. The Bank of England continues quite wisely with its policy of buying more government debt than it would in more buoyant times.

Thus far, it is buying up 125 billion pounds out of the 150 billion that the U.K. government approved. This will help keep interest rates on longer term debt low and ensure that stimulus monies are effective.

The US Fed for its part has bought up 200.72 billion of debt including long term treasuries since last March in a similar effort to keep interest rates low. The US should spend as much of its stimulus as possible with these operations in effect to ensure the maximum effect of their program.

For now and   the foreseeable future inflation is nowhere to be seen.