BoE’s Huw Pill says Brits need to accept ‘we’re all worse off’

LONDON — Businesses and workers are trying to pass the inflationary effect on to each other — and that risks continuing inflation, according to Howe Bell, chief economist at the Bank of England.

“What we’re facing right now is that reluctance to accept that we’re all worse off, and we all have to take our share,” Bell said on an episode of Columbia Law School and the Milstein Center’s “Beyond Unprecedented” podcast, which has just been released. Tuesday.

“To try to pass that cost on to one of our citizens and say, ‘We’ll be fine but they’ll have to take our share – if we get through the parcel game… is something that generates inflation,'” he said.

Bell was discussing the “chain of inflationary shocks” that have fueled inflation over the past 18 months, from pandemic supply disruptions and government household support programs that boosted demand, to Russia’s invasion of Ukraine and the resulting spike in European energy prices. Bad weather and outbreaks followed Bird flu Raising food prices.

But Bell said that was not the whole story, and that it was “normal” for the behavior of price-setters and wage-setters to change in economies including the UK and US when the cost of living rose like energy bills, with workers demanding higher salaries and companies raising prices.

“Of course, this process is ultimately self-defeating,” Bell said.

He added that the United Kingdom, which considers a net importer From natural gas, you’ve run into a situation where the goods you buy from the rest of the world are much higher than what you sell to the rest of the world, services in the first place. UK imports Almost half It’s food.

“If what you buy goes up a lot compared to what you sell, you’ll be worse off,” Bell said.

“So, somehow in the UK, someone needs to accept the fact that they are worse off and stop trying to conserve their real purchasing power by raising prices, whether it be higher wages or passing energy costs on to customers, et cetera.”

The pill’s comments were widely reported across the British media. In February 2022, Bank of England Governor Andrew Bailey came under scrutiny when he He said Haggling over wages can lead to domestic inflationary pressures and prompt workers and employers to show “restraint” in wage discussions. Bailey’s comments Criticize by unions to focus on how wages, not corporate profits, can fuel inflation.

The concept of a wage-price spiral, when rising wages create a cycle of inflationary pressures by increasing business costs and increasing demand, is debated within economics. Several policymakers – including US Treasury Secretary Janet Yellen and officials at the European Central Bank – said they see no evidence of this in the US or the eurozone.

Economists, including IMF chief economist Pierre-Olivier Gourinchas, said wages could rise further without risking growth because they did not rise significantly when adjusted for inflation and the corporate world maintained comfortable margins.

But some argue that the UK is particularly vulnerable to a wage-price spiral that contributes to “stagflation” – low or no economic growth and high inflation – because of its import-heavy economy, weak sterling, and tight labor market that has been constrained by Brexit. , and years of stagnant wage growth.

UK inflation was expected to fall into single digits in March, but came in at 10.1%, with the core inflation rate – which excludes food and energy and closely watched by the Bank of England – at 5.7%.