"There are substantial risks to inflation in both directions over the medium-term. But at present, the most likely prospect remains that, as the global economy slows, accumulating slack in the economy will head off the upside risks to inflation," Tucker said in his closing remarks. "That strategy relies not only on real-economy interactions, but crucially on the credibility of the target and the Committee. Above all else therefore, we must be clear about our mandate: to deliver stable inflation, at 2%, over the medium-term."

The central banker also noted that while many perceived the BOE as attempting to balance the downside risks to growth with upside inflation risks, the relationship between the two made it easier to suggest the MPC was focusing on ensuring that the inflation spike was temporary. He added that higher inflation has not become embedded in expectations.

"If in the interests of sustaining growth in the short run, we were to let inflation become established at higher levels, things could easily get out of control as higher medium-term inflation expectations would become embedded," Tucker said. "We would then find it much harder to bring inflation back to target, and could well end up having to generate a serious recession to put the genie back in the bottle."

By Erik Kevin Franco, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Nancy Girgis, This email address is being protected from spam bots, you need Javascript enabled to view it

CEP Newswires - CEP News © 2008. All Rights Reserved. www.economicnews.ca

The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News.

A copy of CEP News disclaimer can be found at http://www.economicnews.ca/cepnews/wire/disclaimer.