Huw Pill, the chief economist for the Bank of England, contended that citizens and businesses in the United Kingdom need to “accept” that they are now poorer due to inflation.
The central banker said in a podcast interview with Columbia Law School recorded earlier this month and released on Tuesday that economic actors are seeking to “pass the parcel” with respect to elevated inflation, resulting in higher prices across the board. He noted that higher energy expenses driven by the severance of Russian natural gas shipments amid the invasion of Ukraine have especially contributed to the inflationary pressures.
“If the cost of what you’re buying has gone up compared to what you’re selling, you’re going to be worse off,” he remarked. “Someone needs to accept that they’re worse off and stop trying to maintain their real spending power by bidding up prices, whether higher wages or passing the energy costs through on to customers.”
Pill said that the cycle of consumers and businesses raising prices for one another would increase the extent to which inflation continues. “What we’re facing now is that reluctance to accept that, yes, we’re all worse off, and we all have to take our share,” he added.
Price levels in the United Kingdom increased 12.7% year-over-year as of last month, according to data from the British Office of National Statistics. Inflation in the United States meanwhile reached 5.0% last month, according to data from the Bureau of Labor Statistics, even as prices for items such as food and shelter remain elevated for households.
Pill was not the only senior British monetary official to bluntly evaluate the nation’s dire financial straits: Ben Broadbent, the deputy governor of the Bank of England, said in a speech on Tuesday that there is “no getting round the impact on real incomes” as prices increase.
“Thanks to the significant hit to real incomes they involved, these shocks have also had sizable second-round effects on domestic wages and prices,” he continued. “As an explanation for the inflation we’ve experienced I think this fits the actual data better than the single fact of strong household money growth during the pandemic.”
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The combined effect of robust labor markets and elevated inflation in both the United Kingdom and the United States has created scenarios in which rising prices eclipse rising pay: the former nation saw a 3.2% year-over-year decrease in real wages, according to more data from the Office of National Statistics, while the latter nation saw a 1.6% year-over-year decline, according to more data from the Bureau of Labor Statistics.
Recent headline inflation downticks in the United States come as policymakers at the Federal Reserve increase target federal funds rates, a move which mitigates price level rises but inhibits economic activity due to the increased cost of borrowing capital for consumers and businesses. Officials had established near-zero interest rates three years ago to stimulate the economy during the lockdown-induced recession.
President Joe Biden has repeatedly asserted that his policies are responsible for the cooling price level increases in certain product categories, even as inflation rates remain between three times and four times higher than those seen at the start of his administration. “We are making progress in the fight against inflation,” he commented in one statement. “The fight against inflation isn’t over, and every day my administration is working to give families more breathing room.”