A member of the Bank of England group that sets interest rates has warned that inflation is seeping into parts of the economy that are normally more stable, as she said the Bank should ‘s’ support against” long-term inflation.
Catherine Mann said that as we approach 2022 in the UK, expectations of rising prices and wages are likely to keep inflation high for longer.
This in turn could strengthen the rise in prices and wages, she said.
“In my view, the objective of monetary policy now should be to build on this ‘strong for longer’ scenario,” she said.
This is Ms. Mann’s first speech since joining the Bank’s Monetary Policy Committee in September.
The influential committee decides where to set the Bank of England’s base rate, which affects the loans people across the country can take out.
Inflation hit historic highs of 5.4% in December, according to official figures.
But Ms Mann warned that it is not just this overall figure that is rising.
Rising inflation is sometimes fueled by rising food and energy prices, which are volatile and can often come down.
Economists often say that monetary policy makers should look beyond the inflation caused by these volatile areas, because that would mean reacting to every up and down move in the market. This in turn could trigger instability.
But while energy and food prices have soared in recent months, less volatile measures also see rising inflation.
“Many commentaries on inflation over the past year have explained the current high rates by pointing out a few highly volatile components such as fuel or automobiles while claiming that ‘underlying inflation’ was still benign” , Ms. Mann said.
“While that may have been true initially, in 2022 that story no longer holds.”
The MPC is due to meet in early February.