Bank Of England: Inflation On The Decline Despite High Food Costs

The Bank of England governor says inflation is better now. But food prices are rising really fast. It's the worst since the '70s. People are worried about being able to afford things.

Andrew Bailey said that the annual inflation is going to decrease quickly. This is because the price of wholesales for energy has recently gone down. Furthermore, the spike in gas and electricity bills from last year will not be included in this year's annual figure. This is good news for British households.

Bailey spoke to MPs about inflation figures for April. He said he believed it had turned the corner. The official figures would be released on Wednesday morning. Bailey was appearing before the Commons Treasury committee.

Economists say the latest report from the Office for National Statistics will show a decrease in the annual inflation rate. The consumer prices index will likely drop to 8.2%. This is lower compared to March's rate of 10.1%.

Bailey said the central bank needs to learn big lessons. They underestimated the shocks that affected the British economy, such as Covid and Russia's war in Ukraine.

UK's inflation is higher than expected, at double digits, even among advanced economies in the G7 group. The central bank has been criticized for not taking fast action to bring it down to their targeted 2%.

The Treasury committee chair, Harriet Baldwin, compared the Bank's inability to identify inflationary pressures to the mistakes made by City professionals before the 2008 financial crisis. She thinks that the Bank could have repeated the same mistake as those bankers and traders who caused the financial crash.

Bailey said the Bank didn't expect the job market in Britain to be so strong after the furlough scheme ended. They kept interest rates low despite inflation going up. The MPC was worried about more job losses, like most other economic forecasters.

Bailey admitted to making a wrong decision. They take responsibility for it.

Silvana Tenreyro, MPC member, thinks that if the MPC had acted quicker to control inflation, a lot more people would have lost their jobs. In addition, Tenreyro states that the peak for inflation would only have dropped by 2%, to 9%. In the UK, inflation reached its highest, 11.1%, in October 2022.

Bailey reported that the UK economy was hit by four shocks. This caused inflation to increase significantly, rising higher than it has been since the 1980s. The inflation level also remained high for longer than expected.

The governor stated that March had high inflation because of expensive food, clothing, and footwear. The high prices might stay for a while and could cause problems for people.

The man thinks that bad weather in Morocco, problems with sugar production and avian flu have hurt vegetable and poultry supplies. People who grow and make food also agreed to pay more for energy and raw materials a year ago because of Ukraine.

Bailey thinks food producers bought more food at higher prices than they usually do.

Angela Eagle, a Labour MP, asked Bailey if companies were contributing to pressure through "greedflation." Some firms have been rebuilding their profit margins, Bailey said.

The Bank governor said that the biggest cause of the rise in food prices was the high prices of energy and goods last year. However, there are rumors about people buying goods in advance and energy expenses. The Bank's agents also noticed that margins are important. It's a story about businesses trying to make up for lost profits from last year.