Bank of England policy maker Gertjan Vlieghe warned that it’s a “terrible idea” to look at gold prices as a predictor of inflation.
Investors have piled into bullion this year, pushing the price up 30 per cent, amid speculation that massive government spending worldwide to counter the coronavirus shock will push inflation higher.
But Vlieghe, a former Deutsche BanK AG bond strategist, told U.K. lawmakers on Wednesday that the record-high price of gold “tells you precisely nothing.”
Policy makers are instead looking at surveys and financial market measures of inflation expectations, he said. Those have been rising and are now at more “comfortable” levels consistent with the central bank’s 2 per cent target. U.K. inflation accelerated to 1 per cent in July, the fastest in four months, but economists predict that will be short lived.
“If you look at previous episodes where the gold price is very elevated, you realize very quickly that gold is a terrible predictor of inflation,” Vlieghe said.
In a separate written testimony to lawmakers he said there is a material risk that it will be several years before the BOE hits its target.