‘Persistent inflation’ warning from the Governor of the Bank of England
Bank of England (BoE) Governor Andrew Bailey stated that upside risks continue despite the decline in inflation and said, “Markets underestimate the risks of persistent inflation.” said.
England Central Bank (BoE) Governor Andrew Bailey answered the questions of BoE Deputy Governor Dave Ramsden, Monetary Policy Committee member Catherine Mann and members of the Treasury Committee in the British Parliament.
Reminding that the country’s Consumer Price Index (CPI) slowed down by 4.6 percent on an annual basis in October, more than market expectations, Bailey said that the decline in inflation was good news but an expected development.
Noting that they expect a further decline in inflation, including food prices, Bailey said: “Beyond this, larger declines in inflation will depend on secondary effects. Salary increases are still high, not compatible with our 2 percent target level of inflation.” he said.
DRAW ATTENTION TO INFLATION RISKS
Bailey pointed out that despite the decline in inflation, upside risks continue: “The first of these is that risks to domestic inflation dynamics remain high, and wage increases are among them. Another risk may arise due to the impact of tension in the Middle East on oil prices. Oil prices may increase due to geopolitical tension. It hasn’t happened yet, but if there is a wider regional conflict, it may be reflected in prices. “Markets are underestimating the risks of persistent inflation,” he said.
Bailey stated that, therefore, the view to keep the policy rate at the current level is logical.
Bailey also stated that the bank will reach its 2 percent inflation target and that this level is the “operational definition of price stability”, therefore he described the views in favor of increasing the inflation target to 3 percent as “bad arguments”.
‘MARKET UNDERESTIMATES RISKS’
Bailey evaluated that we are faced with a picture showing that demand in the country is gradually slowing down.
BoE Vice President Ramsden reiterated that the bank has concerns about persistent inflation and said, “We believe that inflation will drop to 3.8 percent by the end of the first quarter of 2024. This is good news, but we predict that service sector inflation will still remain at 6.4 percent. “All of these are indicators of persistent inflation and the points we focus on when determining the policy rate,” he said. (AA)
