In the podcast, Mr. Pill to unravel to what extent the current inflationary pressures were temporary or permanent. 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 transient individually, but were so close together that inflation never abated.
He added that there was another factor at play. Britain, which is a large net importer of natural gas, has seen a sharp rise in the price of what it bought from the world compared to what it sold, mainly services. That changes the economic health of the country.
This is what he said:
“You don’t have to be a great economist to realize that if what you buy has increased a lot compared to what you sell, you will be worse off.
So somehow someone in the UK has to accept that they are worse off and stop trying to preserve their real purchasing power by driving up prices, be it higher wages or passing the cost of energy on to customers.
And what we’re dealing with now is that, that unwillingness to accept that — yes, we’re all worse off and we all have to do our part — to try to pass that cost on to one of our compatriots and say : we will be good, but they will also have to take our share. That pass-the-packel game that’s going on here, that game is one that generates inflation, and that part of the inflation can persist.”
It is not the first time a Bank of England official has been criticized for imprecise suggestions to contain inflation. Early last year, Andrew Bailey, the bank’s governor, said it needed “restraint in wage negotiations” to keep inflation from spiraling out of control.
Some European Central Bank policymakers have expressed similar concerns, albeit in softer terms and more focused on corporate behaviour. Europe has also experienced a major so-called terms of trade shock, with the price of an essential imported good, energy, skyrocketing. As a result, the economy has become 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 the burden is shared fairly,” Christine Lagarde, the president of the European Central Bank, said last month.
