The Bank of England is wrong again: workers aren’t to blame for inflation

theguardian.com:

T he Bank of England’s chief economist Huw Pill provoked derision this week when he claimed that inflation means those in Britain need to accept that “we’re all worse off, and we all have to take our share”. Echoing comments made last year by the Bank’s governor, Andrew Bailey, on the need for pay “restraint”, Pill claimed the “pass-the-parcel game” of wage and price rises was “generating inflation”.

I disagree: they are both almost entirely wrong and the clumsy messaging reflects the failure of conventional thinking and policy in tackling the cost of living crisis.

Public anger at Pill’s comments is understandable. The standard of living of most people in Britain today is being crushed by rising prices, with headline inflation at 10.1%, well ahead of wages and salaries rising by only 5.9%. Worse, the rise is being driven by the soaring costs of unavoidable essentials – most notably energy and food.

Those price rises in food and energy have been happening across the world, and this fact contains the solitary grain of truth in Pill’s comments. Households and businesses in Britain collectively import half the natural gas they consume, and almost half the food. When the world prices of both rise, those imports cost more and the country, as a whole, is made collectively poorer.

What Pill, Bailey and the Bank have been getting wrong for the last 18 months is the belief that those price rises internationally need to be met by raising interest rates in Britain.

The thinking is brutal. Pill made it clear in a previous interview when he said that the Bank’s rate-setting monetary policy committee wanted to see higher unemployment to “reassure” them inflation was under control. Interest rate rises are supposed to throttle spending in