In principle inflation clearly has a large impact on income depending on how much income is indexed. This includes wage income, pensions and profits. QE has clearly distorted asset prices and hence wealth. This is not, however, a reason to change the Bank’s inflatio remit. QE as currently used is really fiscal policy to avoid raising taxes which would be distortionary to income as well as wealth. This aspect of monetary policy is not a desirable long-run feature. Ironically, the price for using QE to maintain after tax income stability has been increased wealth inequality.

The EU's fiscal rules are based on the Stability and Growth Pact. They are arbitrary, inflexible, inappropriate and based on an incorrect formulation of the problem. The correct criterion is that sovereign debt should be sustainable: i.e. governments should be able to service and redeem their debt. This permits much more flexibility than the EU's rules and covers all situations for countries whether in a monetary union, having a fixed or a floating exchange rate. The sustainability of the EU's rules is based on a deficit of 3% of GDP, a debt GDP ratio of 60% and inflation of 5%. None of these is either necessary or sufficient to achieve debt sustainability. Their only possible justification is that they are simple. To implement a debt sustainability rule governments should publish detailed plans which can be assessed for their plausibility.