In any event, my view is that, as we seek to disseminate the benefits of low and stable inflation to as wide an audience as possible, consistency of the existing index and level is an advantage. Critics of the process often argue that the MPC should have a second target; most commonly industrialists argue that this should be an exchange rate target, seeking stability for sterling against our major trading partners. I well understand the difficulties that, in particular, exporters face given the volatile movements in exchange rates; and the frustration is compounded by the difficulty in explaining such movements purely in terms of economic fundamentals. Nevertheless it should be recognised that the recent historical experience of the UK in operating monetary policy geared to exchange rate stability has been that a conflict sooner or later emerges between the exchange rate objective and other policy considerations, so that the exchange rate objective has to be abandoned. The most recent experience was our membership of the Exchange Rate Mechanism between 1990 and 1992. Fundamentally, there is a problem in operating monetary policy so as to achieve two targets which one has primacy? How would the trade-offs be made? My view remains that a single inflation target objective is a better, as well as much clearer, framework for monetary policy. My next point relates to the transparency of our process. In almost all committees I have served on in the past, the process has been one of trying to achieve consensus on the way forward.
There is often considerable uncertainty about what the current situation is - a particular problem relating to Q3 as we try to assess the impact of the petrol price crisis in September. Even the past is uncertain and we regularly receive from the ONS revisions to past data about growth of different parts of the economy. As I look at the data each month, knowing that some of the dials are misreading, I am reminded of the saying: that the intelligent man knows that half the data he is looking at is false; the brilliant man knows which half! More seriously we need to have in our mind a view about which data series are reliable and which are particularly erratic. Happily the RPIX data, our goal, is easily observable. But, by way of example, wages, which are a key piece of data, are much less easy to observe. And as we look at the average earnings data, we need to recognise that, not only is it difficult to measure and calculate, it will also occasionally exhibit “noisy” features that may obscure what is going on in the real economy. Indeed, over the Millennium period, as special Y2K bonuses were being paid, it was very difficult to determine what represented real “news” about the economy, and what was mere “noise”. Sitting at the controls of the aircraft, trying to pilot a sensible middle course between the extremes of unsustainable take-off and hard landing, we need “eyes and ears” on the ground.