Emerging market economies are likely to continue growing rapidly, Bank of England policy maker Charles Bean said Friday, also noting that prices for agricultural commodities could drop back a bit. Bean was responding to questions from the audience about inflation and rising commodity prices at the Chicago Booth U.S. Monetary Policy Forum in New York. He is the deputy governor for monetary policy. "It's reasonable to expect emerging economies to continue to grow pretty rapidly," Bean told an audience of Federal Reserve officials and top bank economists.
When asked about core versus headline inflation, Bean said he has always been wary of core inflation, which excludes food and energy prices. He said it is important that policy makers dig below the measure of core inflation and consider the forces that are driving growth.
The key question now is just how much the rapid growth in commodity prices over the last six months will affect prices in general, Bean said. In his prepared remarks, Bean said that asset purchases should be part of a central bank's monetary policy toolkit only in emergencies. He said central banks should use short-term interest rates as their primary policy tool when normalcy returns.
Central banks have accumulated sizeable holdings in recent years after buying assets such as government bonds and other securities, in a bid to stimulate growth amid the global downturn. When asked if a bank could use large-scale asset sales as a way to cool the economy once growth starts to surge, Bean said, in principle, yes. However, he said, asset sales aren't the best way to cool off an economy. Monetary policy is best designed for that purpose, he noted. "The first tool should be macroprudential tools."