Bank of England policy maker Catherine Mann said a slump in energy prices might prompt consumers to spend more on other things, potentially pushing up inflation in other parts of the economy.
(Bloomberg) — Bank of England policy maker Catherine Mann said a slump in energy prices might prompt consumers to spend more on other things, potentially pushing up inflation in other parts of the economy.
The official who sits on the UK central bank’s nine-member Monetary Policy Committee said that lower headline inflation rates coming from falling natural gas and electricity costs “might be good from the standpoint of making households feel more comfortable.”
“On the other hand, what they aren’t going to spend on energy, they’re going to spend on something else,” Mann said at an event Tuesday hosted by the European Investment Bank in Luxembourg. “That translates something that I do not control, which is external energy prices, into something that looks a whole lot more like what I’m supposed to control, which is domestically generated inflation.”
The result, she said, could be an increase in the core level of inflation even if the broader headline Consumer Prices Index is easing. The comments underscore why Mann, the most hawkish member of the MPC, has been pushing for higher interest rates even as investors start to focus on when the BOE will pause its quickest monetary tightening in three decades.
Mann said the question for policy makers is how energy prices are translated into domestic inflationary pressures in the coming years.
She said she didn’t want to see a recession to control inflation, the the better outcome would be measures to increase the supply capacity of the economy. Officials are worried that a jump in the number of people dropping out of the workforce is pushing up wages and threatening to make inflation more persistent.
“A recession is a particularly dramatic way of disciplining the pricing structure of firms, but it’s not the only way,” Mann said. “I would like to see more on the supply side in order to give us a faster speed limit to work with as a central bank. It’s not like there’s an automatic relationship between recessions and bringing inflation down.”
(Updates to add to final paragraphs on inflation risk.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.