Examination of Witnesses (Questions 60-79)
MR LAURENCE
SANDERS, MR
MICHAEL SAUNDERS
AND PROFESSOR
JAGJIT CHADHA
6 MARCH 2007
Q60 Chairman: We have an hour to
do all this, so we do not want to stop your flow but the issue
of globalisation is what I want to go on to next. The Bank of
England in its evidence to us has identified two "tail winds"
by which they describe globalisation and an expansion in the labour
supply, and they feel that they have provided the impetus for
a benign economic environment over the last decade. That situation
may change over the next decade; do you feel that enough is being
done, either by the Bank or the Government to prepare for the
loss of these beneficial drivers?
Professor Chadha: Let me just
understand the question, you mean the beneficial drivers of globalisation
and the labour supply.
Q61 Chairman: Yes.
Professor Chadha: Have we got
a flexible enough regime to deal with the removal of these factors
that have been beneficial in the past? It is a real issue looking
forward and one way to think about the main risks of the current
conjuncture is that we have had a sharp downward shock to traded
sector prices; that means in order to meet a given inflation target
we have had to have higher non-traded inflation than you would
otherwise have had. That has meant high levels of domestic consumption
and public consumption and, along with that, low levels of real
interest rates in order to stimulate domestic demand to get average
inflation at its target. This has resulted in the consequences
of there being elevated levels of asset prices, as most obviously
observed by examining house prices. In a sense, what is going
to happen when those head winds disappear, when the traded sector
prices start to rise again—we are going to have to have
a long period where the economy is going to have to be run at
something less than full capacity, or over-full capacity. I am
not sure, going ahead, how we are going to be able to take the
steam out of the economy gradually and allow those household balances
and those asset prices to adjust in a manner that does not leave
a long-lived downward threat to economic stability going forward.
Q62 Chairman: Do you have any comments
on globalisation, Laurence?
Mr Sanders: In terms of the head
winds the Bank of England describes, this is important. The Bank
of England has had a favourable environment internationally over
the past 10 years and my perception is that the environment will
be marginally less favourable over the next five years as the
growth of the developing countries produces more consumption for
consumer goods. To date there has been a significant benefit to
the UK economy as a result of low cost imports, but as time goes
by these countries will spend more of their GNP on domestic consumption.
My personal view is that this will be an important factor, shall
we say, between five and 10 years down the road, because there
are new sources of supply coming on board—for example, the
African countries are expanding rapidly now and I believe that
the African countries will become what I would term the lion economies
over the next 10 years or so, and also Latin America too has very
significant potential, so I still see the beneficial effect. One
point not in my submission is that since I wrote the submission
I believe that there has been more progress on the Doha trade
round. This is very important, both from the viewpoint of the
developing countries and from a UK perspective. The UK is a major
trading nation and if there is a reduction in import tariffs then
this would of course smooth the path of the Bank of England over
the next five years or so. There is a great deal more I could
say on these subjects, but I had better pass on to Michael.
Q63 Chairman: I want brief but cogent
answers the whole way through, please, because it helps you and
us. Michael.
Mr Saunders: The MPC are quite
aware, as their speeches have made clear, of the extent to which
they have been operating against a fortunate background, and in
a sense it has been the weakness of consumer goods prices which
has allowed them to tolerate high growth of money, credit, asset
prices and services inflation, because they have needed that to
stop inflation undershooting the overall target, and they have
made it very clear that they think the next few years could be
less nice, the trade-off will be worse. The area where there are
questions is whether the framework and the political support for
the MPC are prepared enough for a period in which their job gets
more difficult. They themselves are prepared for it though.
Q64 Peter Viggers: Circumstances
have indeed been benign. Can I put it to you that the Chancellor
of the Exchequer for a couple of years followed his predecessor's
overall spending policies and then eased off very considerably
and allowed greater growth in public expenditure, and this is
now coming home. You will have seen reports of the International
Monetary Fund Report which are published this morning and, just
to pick five points out: the public spending surge of 2001 to
2004 led to a sharp deterioration in the fiscal balance—point
number one. Rising net public debt—point number two. Leaving
little room for manoeuvre in the face of global downturn—point
number three. The Chancellor has started to rein in spending but
much remains to be done, and then the final point, the IMF warns
that further increases in tax rates would risk adversely affecting
incentives to work and invest. Whereas the MPC has been very successful
in working in a benign environment, what can the MPC do, how can
the MPC prepare for a potentially less advantageous background?
Mr Sanders: It is very important
that the MPC continues to monitor the economy rigorously. I attend
the regional meetings, as do my colleagues, of the Bank of England,
and they do speak to a wide range of business executives; therefore
they are very familiar with the incentive aspects, and I know
that the regional reports do play a role in the MPC decision-making.
One important factor is the dialogue between the MPC and Government,
and I have long argued that fiscal and monetary policy must be
compatible. This is essential for economic success and I believe
that fiscal policy has been broadly compatible with monetary policy
over the past 10 years as a whole, and this is one reason why
we have had the success in UK economic policy. It is important
to maintain control over the fiscal stance; I am not an expert
on public finance but I do perceive that the percentage of GDP
accounted for by public debt has risen in recent years. In respect
of the increase in 2001-02, that was appropriate; the world was
experiencing a downturn and it was right that the Chancellor of
the Exchequer did expand fiscal policy during that period. We
have now reached a stage where UK growth is around about 3% per
annum, the Bank of England is tightening policy and therefore
the Chancellor will have to follow suit with a gradual tightening
of fiscal policy over the next five years if we are to maintain
our record of good sustained growth, low inflation and low unemployment.
The Chancellor will probably have to tighten policy gradually
over the next five years.
Professor Chadha: Very briefly,
there are two issues as far as fiscal policy is concerned. We
need to be absolutely sure that the fiscal plans are such that
the debt to GDP level is stabilised, so there is no sense in which
there should be drift in the level of debt to GDP, and that means
writing down fiscal plans in terms of expected taxes and expenditures
that mean debt is stabilised at some given level. What that level
is, there is a range of estimates out there, but we think somewhere
between 30% to 40% of GDP would be a sensible level for debt to
GDP. As far as interest rates are concerned, the Bank of England
will know when setting interest rates what the fiscal path is
in terms of taxes and expenditure; therefore it can predicate
its interest rate stream on that fiscal path and to the extent
that fiscal policy is too tight—or too lax indeed—you
will see interest rates higher to some extent, or lower than they
would otherwise be. I do not think necessarily over the business
cycle that that is a particular problem.
Mr Saunders: The issues which
you have raised, of whether there is enough safety margin in policy,
are all to do with fiscal policy and they are not ones which the
MPC set. The IMF warnings on fiscal policy are well-taken; the
deficit is higher than you would like it to be for this stage
of the cycle, but that is not something which the MPC can affect,
they have quite sensibly taken the view that they will keep out
of fiscal policy discussions unless fiscal policy starts to affect
inflation prospects, and at the moment it does not.
Q65 Peter Viggers: Of course, the
MPC is very much, in golf terms, a one-club player is it not?
Mr Sanders: That is a very good
description, yes; it is very effective club.
Chairman: We need Jack Nicklaus.
Peter Viggers: I will leave it at that,
Chairman, thank you.
Q66 Mr Love: I was just going to
agree with you, Chairman, what you need is a Jack Nicklaus to
swing the club to make sure he gets it right. Can I turn to house
prices? To what extent would you agree that the rise in house
prices, indeed the rise in household debt, is a consequence of
the low inflation we have had in recent years?
Mr Sanders: That has been a key
driver of house prices, another key driver is personal disposable
income, and the fact that we have had an upturn in economic growth,
I believe that trend growth now is about 2¾% as opposed to
2½% over the past 50 years as a whole, so the prosperity
of the economy has also been another factor. Interest rates, both
base rates and short term rates—in respect of the mortgage
market it is the two and three year interest rates which tend
to be key drivers. Currently, around 80% of mortgages are on fixed
rates and they will tend to be two and three year periods; interest
rates in the longer periods are determined partly by international
forces, but interest rates have probably been the key driver because
they have increased people's ability to repay debt. Another factor
though has been the confidence factor, the fact that we have had
relatively low stable inflation over the past 10 years has reduced
people's risk assessment of house purchase and therefore people
are more willing to take on slightly higher levels of debt in
the current environment, but you are right that interest rates
have been the key driver.
Q67 Mr Love: Would anybody demur,
I assume you all agree with that?
Mr Saunders: To me this brings
us back to the point we were talking about a minute ago, that
the MPC have had this fortunate background of falling goods prices.
If you are to stop inflation undershooting you need to pump up
domestic demand, the service sector and inflation and with that
tolerate, and at times encourage, an asset price boom, otherwise
inflation as a whole undershoots. So if they had resisted the
house price boom they would have had a bigger inflation undershoot
and probably faced criticism for that. I think there are times
when the MPC might not have put enough weight on asset prices,
both houses and equities, as lead guides to growth, but that is
not saying they should target asset prices as a separate objective
because they cannot do that.
Q68 Mr Love: Let me take you on a
stage, do all of you believe that the economy is now more sensitive
to interest rates? Although we talk about fixed rates, most of
them are still variable; how sensitive is the economy and has
that been fully taken into account by the Monetary Policy Committee?
Mr Sanders: The economy is more
sensitive to interest rates, but the build-up of household debt,
even with two and three-year fixed rates, eventually those rates
will run off and people will therefore be sensitive to the refinancing
of rates. The economy is therefore far more sensitive to interest
rates than has been the case and I would imagine that the Bank
of England is aware of that. Certainly, I have discussed that
factor with the Bank of England regional agent and I know that
the agent speaks with our chief executive and the director of
our mortgage division and the Bank of England closely monitors
the mortgage market. I believe that the Bank of England has taken
this on board and, as a result of the increase in debt, it probably
means that the Bank of England can secure its objectives by a
marginally lower level of interest rates than would otherwise
have been the case. From the personal borrower's point of view,
there are going to be more challenges over the next five to 10
years or so, so the majority of borrowers, I believe, are taking
the view that a fixed rate has advantages in the current environment
and recently, we have seen a notable increase in the amount of
10-year fixed rate mortgage business written.
Q69 Mr Love: Mr Saunders, you mentioned
earlier that they had to set interest rates in order to keep inflation
within the target range. The recent period of economic stability
that we have been talking about has been with a period of low
interest rates, has this led to an inability of firms to correctly
price risk?
Mr Saunders: Can I come back on
this, because this is important; it is also important to put into
context this question of increased sensitivity to interest rates.
One of the other changes in the economy, apart from high debt
levels and, hence, an increased sensitivity to rates, is increased
sensitivity to the re-pricing of risk across the business cycle
which affects the ability of both companies and households to
borrow. If you like, it is the feedback from the state of the
economy to the availability of credit, and that occurs through
changes in credit spreads or just a willingness of lenders to
advance credit to riskier projects. What we saw in 2001, 2002
and 2003, a period when the global economy was very weak, was
wide credit spreads and consequent weakness in business investment,
much harder for firms to get going, hence monetary policy had
to be quite loose to provide a stimulus against that. Now that
we have had several years of decent growth, credit availability
is much more ample, so on the one side higher debt levels make
consumers more sensitive to higher interest rates, but on the
other side things that would never have got financed a few years
ago, or not financed on as favourable terms, now do get financed,
so there is a cyclical overlay to credit availability which you
need to take account of.
Q70 Mr Love: The question I really
wanted to ask you was if they did set interest rates in the way
you have suggested and it had the impact, should they have been
taking other measures, not the Bank of England but perhaps the
Treasury or the Chancellor taking some measure to deal with the
house price inflation that was a consequence of the interest rate
policy that they were setting?
Mr Sanders: In respect of other
measures, there are various fiscal measures which are available
to the authorities, but interest rates are probably the key driver
of the housing market and the interest rate weapon is probably
the most effective weapon to control housing. The interest rate
weapon feeds into a number of other areas as well; when it comes
to asset prices interest rates have a major effect on equity prices
and they also have a major effect on investment, so the interest
rate weapon is a very powerful weapon and I believe it is probably
the most effective weapon for controlling the level of house price
inflation. The main reason for house price inflation is an excess
of demand over supply; it is quite a significant factor and we
expect this to continue for some time. Whatever measures the Government
takes, this excess of demand over supply is probably likely to
continue over the next five years or so. I am quite willing to
go into this factor in more detail and I am quite happy also to
provide a written statement on this if members require that.
Chairman: If you could give us a written
statement that would be helpful. [7]We
will have to move on.
Mr Love: Just a quick one in relation
to money supply. The Bank has noted the fact that money supply
is increasing very rapidly, it is taking it more into account.
It has not been terribly transparent about how much it is taking
that into account; is this the correct reaction from the Bank
in terms of money supply?
Q71 Chairman: Perhaps just one of
you could give us an answer.
Professor Chadha: Money supply
is absolutely a key variable to study in terms of thinking about
the macroeconomy. It does not mean you should go to the extent
of having a second pillar, such as we see at the ECB, but very
briefly there are a number of reasons. Firstly, data gets revised.
In real time we do not know the state of the economy, we do not
know whether it is growing at 3% or 2% and the data that gets
released gets revised in different directions. Money is a measure
of real time transactions and therefore has information for us
as we try to gauge the true state of the economy. Secondly, we
know money has information on various sectors; for example, narrow
money might tell us about retail sales or consumption patterns
and certain aggregates of broad money may tell us about investment
plans by firms, so by studying the components and particular measures
of money we may get measures of real activity at a sectoral level.
You are right to say that money is often associated with asset
price inflation, so again if we look at the counterparties of
lending and try to understand into which parts of the economy
that is going, that may give us some information about whether
there is an asset price bubble. That said—and I just want
to finish on one brief point on housing itself—we should
not necessarily think that house price inflation is a bad thing.
A lot of theory tells us that consumers want to smooth their consumption
over their income path. In the past, consumers were often credit-constrained
because they required collateral in order to borrow, and the extent
to which the equity in their houses increases allows them to borrow
today for durable expenditure and smooth their consumption path
through time, is beneficial to those consumers. So it is not necessarily
the case that either house price inflation is necessarily bad,
or that the debt that they take on is some kind of disequilibrium
phenomenon that is going to crash as soon as interest rates return
to some normal level. We should not necessarily think it is a
bad thing therefore. Finally, I have not seen work to suggest
that necessarily the economy is more sensitive now to interest
rates than it was in the past, for some of the reasons Michael
was suggesting: that we have new cohorts of people with access
to credit, but also if we look at the asset side of the balance
sheet, net worth is as strong as it was before so, okay, we are
more indebted but we have also got more wealth than we had before
so the net effects are not clear. We need more work in that area.
Q72 Ms Keeble: I want to ask about
the consumer price index, whether or not it is the best measure
of inflation for the MPC to use. Do you think it should be modified
in any way, for example by taking into account house prices? Do
you think there is an issue about credibility given that there
is a current debate now about inflation and it is the first time
I certainly have seen it in the public domain for a good many
years? Do you think there is an issue perhaps about the credibility
of the MPC if its discussions about inflation are out of kilter
with what the general public experience, or should the MPC just
say that is not our business, we do not have to worry about it?
Professor Chadha: It is true to
say that the RPI as it was traditionally defined had a higher
component of housing costs in it, the CPI has not. In a sense
that increases the weight that the MPC should put on housing price
developments in order to forecast future trend in the CPI because
it is that which they are trying to stabilise. That said, it is
also clear if you look at the very long run in these price indices
they do not really diverge in a persistent manner over the long
run, so it does not particularly matter which measure of the price
level we target over the medium term as far as the MPC is concerned,
but we must learn to extract the information that is given from
the divergences that we may observe in real time.
Q73 Ms Keeble: There is a factor
in management of the economy, especially around inflation, which
is partly around public confidence and public credibility. Do
you think it helps in managing the economy—and in particular
the MPC has a very critical job in managing inflation—if
there is a really serious feeling out there amongst the public,
and while I do not know about my colleagues I get about 20 or
30 e-mails a day from public sector employees currently who are
talking about inflation. They might be put up to it, but they
are still doing it. Do you think there is an issue about public
confidence if there is a serious debate about what rate inflation
is currently and if that is perceived to be different, not just
from what the Government is saying but from what the MPC is saying?
Professor Chadha: I will give
you two bits of data that back up your observation from your constituents
perhaps and other colleagues. Ten years forwards from the yield
curve in early 2005 was something like 2.9% suggesting that RPI
inflation as expected by market participants on their trading
nominal and real bonds, was about 2.9%. Today that is 3.2%, it
has gone up 30 basis points, so you look at the change rather
than the level. If we do a survey of City and other forecasting
houses on inflation, a year ago those survey expectations of 2007
were around 2%, and they have gone up as of February to about
2.3%, so there has been drift up in those key inflation expectations.
The inflation expectation there may not be strictly aligned to
the CPI target that the MPC is charged with pursuing; it is therefore
incumbent upon the MPC in terms of transparency to explain how
by meeting their CPI target these other measures, the RPI or the
RPIX, would also come back to something in line with price stability.
There needs to be further explanation of how these other things
will come back into line.
Q74 Ms Keeble: Do you think they
are providing that explanation adequately and do you think they
have to either do that or adjust the CPI?
Professor Chadha: The argument
they are following is that the Bank of England wants to pursue
what they call flexible inflation targeting, which means that
in the presence of maybe elevated asset prices there is a possibility
of vulnerable household balance sheets. It may want to return
inflation to its target at a slower rate than it may have wanted
to in the past; the problem with that in real time is that it
is observationally equivalent to some drift in the inflation target
itself. To some extent there has not been a clear explanation
of what in effect flexible inflation targeting really means, and
how you explain to people that you are in fact going to meet your
target. We can talk about the inflation report in February later
on, but I just want to give that very brief answer and I am happy
to return to that point later.
Q75 Jim Cousins: Do you think there
has been a systematic tendency by the MPC to under-estimate the
impact of globalisation on product prices here and the impact
on the labour market of inwards migration?
Mr Sanders: My personal perception
is that that is not the case. When I attend the regional briefings
of the Bank of England the question of migration is mentioned
by the Bank of England representatives and by business-people
consistently. In terms of the global effect, this too is something
which is consistently mentioned at these briefings, so my feeling
is that the Bank of England has taken due note of the factors.
It is a challenge though, both to the Bank of England and other
forecasters, that the global economy is now changing at a more
rapid rate, so therefore it is probably more difficult for the
Bank of England or indeed any policy-maker to ascertain quite
what is happening in the global economy; its job in that respect
is more difficult, but my perception is that the Bank of England
does take full account of these measures, but that is just one
personal perception.
Mr Saunders: I have to say that
actually I would disagree. They probably have under-estimated
their impact and I would say that applies to virtually all economic
forecasters. Almost everyone has been surprised at the extent
to which consumer goods prices fell year after year for the last
eight years, and the pace of inward migration from Eastern Europe
after the opening up of the EU in 2004. The MPC has probably been
quicker than most in appreciating the importance of those things,
but those shocks have just been much greater and much more disinflationary
than almost anyone had expected and, of course, the question going
forward is just whether that will continue. I would say they have
understandably under-estimated the effect.
Professor Chadha: There has been
more generally a problem with inflation forecasting equations,
possibly for the sake of globalisation or labour mobility reasons,
but also because of credibility. Inflation expectations have been
reasonably well anchored, which means that when we try to run
the models that we have run in the past, cost mark-up type models
and others, we have not seen inflation emerge in the way that
it has before and it has been a widespread phenomenon. There has
been a lot of work in the States finding inflation-forecasting
equations not working very well, and indeed in the UK as well,
but as my colleague suggested there are some good reasons ex post
to explain why those equations have fallen down. The key problem
is the inflation expectations in all of this.
Q76 Jim Cousins: Dealing with inflationary
expectations and taking the point that has just been made to the
Committee about the re-pricing of risk, do you think there could
be problems going forward in those matters?
Professor Chadha: The issue about
inflation expectations is that in this world in which structural
economic equations seem to have failed in some sense, inflation
expectations have become almost a way of summing up all our knowledge
of all the possible models into one key indicator, which is what
is happening to inflation expectations. The central banks have
tried to learn from inflation expectations in the sense that if
we do not know the true model, what we will try and do is just
learn about inflationary pressure through what agents and financial
market participants expect inflation to be. From the learning
process they may decide to manage those inflation expectations,
in terms of the sense in which they may decide to feed back from
them, so that when inflation expectations start to rise they may
decide to raise policy in order to stabilise those inflation expectations.
The problem then comes in the next step, that those inflation
expectations may stop giving you the information that they gave
you before because they incorporate an expectation that the policy
itself will move to stabilise them and they will not necessarily
themselves convey inflationary pressure. That is a real danger
we are now in, that the inflation expectations themselves stop
giving the information back to the central bankers that there
is incipient inflationary pressure.
Q77 Jim Cousins: The point of my
question was really precisely about those second order effects
and I would be interested in the views of the other two witnesses.
Mr Sanders: In respect of the
forecasters' records, the Bank of England and most City economists
place a great deal of emphasis on econometric modelling and, by
definition, this involves observations of past experience. The
experience of econometric modelling is that it works very well
in a fairly stable environment, but when you have a major change
in external factors it presents more challenges and that is one
reason why some economists have not been too successful in the
past two years. I hasten to add that I have a high regards, along
with my colleagues, of most of the economists in the City, but
it is more of a challenge when you get these changes and it is
going to be more of a challenge over the next five years at a
time when the global economy is expanding. The Bank of England
does attach great stead to survey data, feedback from industrialists
and from those in the public sector as to what they perceive is
likely to happen in the future. Economic forecasting is not only
projecting what happened in the past forward, it is also a question
of what is going to happen in the future and the Bank of England
also spends a lot of time discussing with business leaders as
to how they see their business over the next five to 10 years.
This is going to be increasingly important in the international
world. In respect of the comments made, could I ask whether there
is one specific point you would like me to comment on in respect
of the Professor's comments?
Q78 Jim Cousins: This particular
bit of the democratic deficit will be in trouble with the Chairman
if I encourage you to speak too much, but I am content with that.
Just one more point, you have raised the issue yourselves that
public sector workers may feel that the inflation they are experiencing
as individuals is running at a much higher rate than is being
recognised by the target-setters and they might conceivably try
to put pressure on the Chancellor to produce a different inflation
target to recognise that. Do you think it is the Chancellor who
should set the inflation target or somebody else?
Mr Saunders: In the long run it
makes little difference as to whether you target CPI or RPIX,
both would be fine. I feel it should not be as easy to change
the target as it is now; if you have a target you should stick
to it and to me the cost is more changing the target rather than
what the particular target is.
Professor Chadha: In terms of
democracy the Chancellor is an elected person, he is representing
the party of government and he should be the person who sets the
target. The Bank of England is operationally independent to pursue
that target with the MPC and the instrument at their disposal
which is the short term interest rate, so I am perfectly happy
with the current arrangements.
Mr Sanders: My view is that an
inflation target must be credible, and my feeling is that there
is a gap now between what people's perception of inflation is
and the CPI measure. I believe the European Union are going to
move their own measure of CPI in 2009 to incorporate an element
of housing costs and I would imagine that sooner or later we are
going to follow suit. I believe that that change should come in
the UK sooner rather than later and it is very important that
public perception of inflation is the same as the financial markets'
knowledge of inflation. The general public can understand the
concept of RPIX, which is headline RPI less mortgage interest;
most people understand the concept that with mortgage interest
they are buying an asset as opposed to spending money on consumer
items, so that would be credible but I would not imagine that
the average person in the street would fully comprehend what CPI
means. I believe that the inflation target is credible, must be
credible, and that is going to be more important over the next
five years at a time when the inflationary climate will probably
be slightly less benign than it is currently.
Chairman: You have given us a big educational
challenge there: everybody has got to understand what CPI is;
there will have to be a lot of money spent on that which will
maybe have some implications.
Q79 Mr Gauke: Could I just turn to
the appointments process and ask you whether you consider that
a more transparent appointments process would be to the good,
or whether you share the concerns of the Chancellor that this
is an area that is market-sensitive, given your City perspective.
Do you agree with that?
Mr Sanders: In respect of the
appointment, first of all I would like to emphasise that the calibre
of MPC members in my view has been very high and they have done
a very effective job. In respect of the appointment process, that
largely is a question for democratically elected politicians;
from a City perspective what we are looking for is a person who
can do the job effectively and, not only make the interest rate
decisions, but also communicate the decisions to industry and
to those in the public sector. The communication is going to be
an increasingly important part of an MPC member's role over the
next few years or so. From a transparency point of view there
may be a case for having a civil servant appointments procedure
in place, but it is very important that the members of the MPC
are questioned and endorsed by members of the Treasury Select
Committee; it is very important that you monitor the process.
In respect of the appointment, that is one for democratically
elected politicians.
Mr Saunders: My view is that there
should be some external source of shortlist or check on the candidates.
People so far have been good, but you asked right at the start
of the last session what are the risks for the next 10 years and
one of the issues is whether a future Chancellor at any point
would seek to change the target or the appointment process in
a way which undermines the aim of inflation stability. That is
a weakness.
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