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Facing the Inflation Reality: Bank of England Economist Urges Brits to Share the Burden Equally
Huw Pill, the chief economist of the Bank of England, has urged Brits to come to terms with their current financial situation. During a recent podcast, Pill highlighted that workers and companies were engaged in a “pass the parcel” game about inflation. Although various shocks, including the pandemic had fueled inflation, the war in Ukraine, and crop shortages, Pill stressed that people in the UK needed to acknowledge that the costs of goods that the country imported had risen more quickly than the value of its exports.
Pill’s remarks come when workers and companies attempt to transfer the impact of inflation onto each other. This strategy is risky, according to Pill, and could result in persistent inflation. “To try and pass that cost on to one of our compatriots and say, we’ll be all right, but they will have to take our share — that pass the parcel game … is one that is generating inflation,” he said.
Pill discussed the factors that had fueled inflation over the last 18 months, describing them as a “series of inflationary shocks.” These shocks included pandemic-related supply chain disruptions, government support programs that had boosted demand, the Russian invasion of Ukraine, which had caused European energy prices to soar, adverse weather and the outbreak of avian flu that had driven up food prices.
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Pill acknowledged that while these factors had played a role in generating inflation, it was also “natural” for price-setters and wage-setters in economies like the UK and the US to adjust their behavior in response to rising living costs, such as energy bills. This behavior typically entails workers demanding higher salaries and businesses raising prices.
In March, the UK’s inflation rate was expected to drop to single digits but instead came in at 10.1%, with core inflation at 5.7%, which excludes food and energy and is closely monitored by the Bank of England.
Pill’s comments suggest that the UK must come to terms with the fact that it is facing inflationary pressures that are not solely the result of external shocks. Rather, workers and companies must accept that they must share the burden of inflation equally to avoid a cycle of persistent inflation. While it may be challenging for Brits to accept that they are now poorer, it is a necessary step to avoid an inflationary spiral in the economy.
