In the podcast, Mr. Pill was asked to untangle how much current inflationary pressures were transitory or durable. Britain had been hit by a series of shocks — the pandemic, higher energy pressures caused by the war in Ukraine, a disrupted food supply — that were individually transitory but came so close together that inflation never waned.
He added that there was another factor at play. Britain, which is a big net importer of natural gas, faced a big increase in the price of what it was buying from the world compared with what it was selling, mainly services. That changes the country’s economic health.
Here’s what he said:
You don’t need to be much of an economist to realize if what you’re buying has gone up a lot relative to what you’re selling, you’re going to be worse off.
So somehow in the U.K., 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 onto customers.
And what we’re facing now is that, that reluctance to accept that — yes, we’re all worse off and we all have to take our share — to try and pass that cost onto one of our compatriots and saying we’ll be all right, but they will have to take our share, too. That “pass-the-parcel” game that’s going on here, that game is one that is generating inflation, and that part of inflation can persist.
It’s not the first time a Bank of England official has been criticized for indelicate suggestions on how to hold down inflation. Early last year, Andrew Bailey, the governor of the bank, said there needed to be “restraint in pay bargaining” so inflation didn’t get out of control.
Some European Central Bank policymakers have expressed a similar concern, though in gentler terms and more focused on the behavior of companies. Europe has also experienced a large so-called terms-of-trade shock, in which the price of an essential imported good, energy, surged. That has left the economy poorer, and European policymakers have urged companies to accept some losses, just as workers have had to accept lost real earnings.
“It is important that there is fair burden sharing” between firms and workers, Christine Lagarde, the president of the European Central Bank, said last month.