The Bank of England’s chief economist, Huw Pill, has advised Brits to come to terms with their current economic situation. Pill warns that workers and companies are participating in a risk-laden game of “passing the parcel” to deal with inflation. Although inflation was triggered by various factors such as the COVID-19 pandemic, the war in Ukraine, and crop shortages, Pill explained that people in the UK must understand that imported goods’ costs have risen faster than the country’s export value.
According to Pill, trying to transfer the inflation burden to fellow Brits could lead to persistent inflation, which is a risky strategy. “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 discusses the various factors that contributed to increasing inflation over the last 18 months, calling them “inflationary shocks.” These factors include problems in the supply chain caused by the pandemic, government support programs that have boosted demand, the Russian invasion of Ukraine, which led to soaring energy prices in Europe, adverse weather conditions, and an outbreak of avian flu that drove up food prices.
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Pill acknowledged that though these factors played a role in generating inflation, it is natural for price and wage-setters in economies like the UK and the US to modify their behaviour in response to the rising cost of living, such as energy bills. This behaviour usually involves workers demanding higher salaries, and businesses increasing their prices.
The UK’s inflation rate was anticipated to fall to single digits in March but rose instead to 10.1%, with core inflation at 5.7%, which excludes food and energy and is closely monitored by the Bank of England.
Pill’s statement indicates that the UK must acknowledge that it is facing inflationary pressures that are not solely caused by external forces. Instead, both workers and companies must accept that they must share the burden of inflation equally to prevent a vicious cycle of inflation. While it may be difficult for Brits to acknowledge that they are now less wealthy, it is a crucial step in avoiding an inflationary spiral in the economy.
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