Oral question asked in the House of Lords, by Lord Peston (Labour). It was answered on Wednesday, 16 February 2011.

Monetary Policy Committee

Question: Will the noble Lord confirm that it is vital never to confuse the price level with the inflation rate? If the price level goes up as the result of a deliberate policy by the Government to raise VAT, there is no reason to interpret that as a rise in inflation. Therefore, it would be entirely idiotic for the MPC to raise interest rates at any time solely because the Government had raised VAT. Does the noble Lord agree?

Answer: My Lords, again, I do not want to be drawn into either economic debate with the noble Lord, Lord Peston, or commentary on the governor. The governor indicates that the rise in VAT was one factor behind the rise in inflation, but I should point out that the rise in VAT to which he was referring was the one under the previous Government and not the present rise to 20 per cent. However, I take the noble Lord’s point about the nature of one-off rises such as that.

Secondary information

Type: Oral question
Reference: 725 c648
Session: 2010-12
Oral question type: Supplementary
Chamber / Committee: House of Lords chamber
Related items: Inflation
Monday, 7 March 2011
Written questions
House of Lords
Subjects: Monetary policy Monetary Policy Committee Treasury
Link: View this Oral question on www.publications.parliament.uk