(Bloomberg) -- In an era of massive money creation, official U.K. data are sending wildly conflicting signals on whether such crisis stimulus might sow the seeds for an inflation surge.
Statistics on Wednesday showed consumer prices rising at a mediocre pace of 1% a year -- higher than expected, but still only half the Bank of England's target.
Yet there's a striking anomaly. Other official figures a week earlier showed the GDP deflator -- a technical measure that's also typically useful as a gauge of price growth -- at 7.9%. That's near the strongest since the 1970s, when inflation was sky-high.
The mismatch provides ammunition for both sides of an ongoing debate on whether an inflation shock driven by huge monetary and fiscal stimulus is an growing danger, or a remote prospect.
In truth, according to Bloomberg Economics's Dan Hanson, the deflator has been totally distorted because of the way the coronavirus has affected the government's operations. The state has ramped up spending, yet output-- particularly in schools and hospitals -- has fallen dramatically in an effort to curtail the spread of the virus.
It looks as if the government is spending huge sums while providing fewer services. In other words, it appears -- misleadingly -- as if the price of government goods has surged. So long as that analysis holds water, there's no need for the BOE to worry just yet.
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