The fact that we have had high inflation all over the world for some time is not new. People actually got used to it. Huw Pill, the chief economist of the Bank of England, claims people should accept the fact.
People have become poorer
Pill was interviewed on a podcast called “Inflation: Not Dead Yet”, by Columbia Law School, explaining how inflation has surged globally over the past 2 years.
Fortunately, inflation levels are going down with extremely high interest rates. The inflation level in the US fell to 5%, close to the Fed’s target of 2% to 3%. However, the interest rates are at 5%. The situation in the UK is even worse.
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While inflation levels gradually decrease globally in most cases, the UK inflation is still at 10.1%. This is just 1% lower than its high of 11.1% in October 2022. The Bank of England has already increased interest rates from 0% at the beginning of 2022 to the current 4.25%.
UK’s inflation vs interest rates, source: tradingview.com
According to Pill, people of any profession of life should give up demanding income raises in order to keep up with their high standards of living.
“If the cost of what you’re buying has gone up compared to what you’re selling, you’re going to be worse off. So somehow in the UK, someone needs to accept that they’re worse off and stop trying to maintain their real spending power by bidding up prices, whether through higher wages or passing the energy costs through on to customers,” he explained.
In the interview, Pill said how important it is for the central bank to hold price stability, but it all changed with the arrival of a post-covid era. Now everyone is raising prices, which is “ultimately self-defeating.”
Pill says people should accept the higher prices and step back so inflation can come down. Inflation will worsen if businesses and workers alike try to outpace each other by charging higher prices and paying higher wages.
The inflation rates worldwide are undoubtedly coming down. However, Pill’s point is that people racing for price increases will only prolong this period of higher inflation. That means people should step back for inflation to finally fall down. If not, UK citizens could probably see many more rate hikes.