That is, how does one make monetary policy when headline inflation includes the price of financial assets that are prone to speculation, bubbles, and busts?The second point, that "concerns about inflation, particularly on the part of foreign dollar-holders, are likely to show up first in the relative prices of internationally traded commodities", is less clear to me.
In the meantime, the central bank was reining in credit to counter rising inflation, including spiralling home prices.
It has averaged an inflation-adjusted growth rate of 7 percent a year over the last decade (nearly 12 percent a year without adjusting for inflation), including the costs of the wars.
A Lehman Brothers economist, Mingchun Sun, wrote to clients, "We expect more monetary tightening to rein in inflation, including further rate hikes".
China took four more steps on Sunday and Monday to slow inflation, including setting limited price controls in provinces where the cost of living is rising fastest.
He said the bank would take "firm and timely action" to counter a list of "upside risks" to inflation, including wage demands, indirect taxes and vigorous credit growth.
The move to the lower CPI inflation measure was the single biggest cut because public sector pension funds must calculate retirement incomes with inflation included and CPI averages 0.7% lower each year than RPI.
Military spending has grown at an inflation-adjusted average of 7 percent a year in the decade since the terrorist attacks of 2001 — the rate is nearly 12 percent a year before adjusting for inflation — including the costs of the wars in Iraq and Afghanistan.
Wolfson said adding in the cost of general wage inflation, including the living wage premium (LWP), the wage bill would rise by £147m to 2020, which could add 6% to prices.
Based on a broad measure of inflation included in last week's report on economic growth in the fourth quarter, prices rose at a 1.5percentt annual rate, higher than the 1.2percentt previously reported.
Independent economists said that the Chinese government's actions were late and probably inadequate to contain rampant speculation that is starting to feed inflation, including rising prices for some goods imported by the United States.
