And our decision to leave interest rates unchanged in January reflected that view. Although house prices do not enter the CPI directly, the Committee will continue to monitor the housing market as carefully as before in order to assess the implications for the inflation outlook resulting from changes in the balance between nominal demand and supply and in the exchange rate. Equally, economic decisions made by businesses and individuals over the next year or so should be unaffected by the change in the target. If the degree of underlying inflationary pressure remains  2  BIS Review 5/2004  unchanged, and there is no difference in the stance of monetary policy, then the rates of increase of wages, earnings and prices that are consistent with the new target are no different from those which were compatible with the old target. In other words, wage bargaining should be unaffected by the switch in inflation target - as should price setting by firms. Of course, the new target will make clearer how much of an increase in money earnings represents a real rise in living standards - a pay increase of 2½% that was described as a “cost of living” rise under RPIX will now be shown by the CPI as a ½% increase in real pay, even though no individual price has changed. The MPC will still need to monitor carefully developments in the labour market in case they signal a change in costs that might threaten the target in future.
Sadly, as Keynes recorded, Aston Villa lost 3-1 and finished that season as runners-up to Blackburn. It is unclear whether Keynes ever again visited a football ground, and there must be a real possibility that, for him, Villa Park was the sum total of his football experience. In later years some of Keynes’s disciples forgot not only his connection with Villa Park but also his view that price stability was a necessary condition for a successful economy. Tomorrow is the 80th anniversary of the death of Lenin, and it was to Lenin that Keynes attributed the remark: “The best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens”. After doing their best to test this proposition, successive British governments have committed themselves to stable and low inflation. And for the past decade, inflation has ceased to be a dominant consideration in the economic decisions of families and businesses. That has been achieved by aiming at a symmetrical inflation target. Crucial to the success of such a policy is the ability to anchor inflation expectations on the target. For this to be the case, the target must be clear and well understood. From May 1997 the target was 2½% for RPIX inflation. But in December the Chancellor gave the Monetary Policy Committee a new target for inflation.