The MPC are beginning to look like a bunch of economists huddled in a storm shelter in Kansas hoping the tornado will pass by. It really is time to face the storm. In 2008, oil prices were driven higher by speculative trading and large derivative positions. The subsequent fall, reflected the closing of short positions pushing oil underground to $40 a barrel. The trend is for higher and higher prices as the high growth nations and China in particular places great demands on finite resources. Gapology is dead and monetary policy needs to reflect that. The increase in output prices to almost 6% with a trend output gap of the same dimension should be adequate evidence.
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