Andy Haldane of the Bank of England warns of inflationary complacency at parting
The chief economist of the Bank of England resigned on Wednesday and criticized his central bank interest rate setters for underestimating the growing risk of dangerous inflation in the UK.
in a Speech In an interview with the Government Research Institute, Andy Haldane stated that people and companies have formed a “culture of dependence around cheap money” and the threat of rapid price increases is “rapidly rising.”
“If this risk becomes a reality, everyone will lose,” Haldane said. “The central bank that missed the task needs to implement the economic handbrake. Enterprises and households face higher borrowing and living costs, and the government faces rising debt servicing costs.”
Chief Economist who is leaving Managing the Royal Society of Arts, Directly contradicts the Bank of England’s monetary policy thinking, which is based on the belief that in the near future The price increase is temporary And it will ease up soon.
“I think our history has taught me a lesson… It’s that inflation always starts locally and begins to look for [as if it is] Temporary, but often. .. Is the thin end of the thick wedge,” he said. “Local price pressures have become general price pressures, and those temporary price spikes have evolved into more permanent price increases. “
“This is an evolutionary process, and we have seen this process time and time again in history,” he added. “The key takeaway policy is to stifle this process in its infancy.”
Haldane said he expects the inflation rate to be close to 4% by Christmas, which is twice the Bank of England’s target.
He used the analogy of English football to explain the reason. He said that as the Covid-19 crisis subsided, “three lions caused the economy to pick up”.
The first is that with the lifting of the coronavirus restrictions and the opening of the economy, this has caused an economic rebound. If the government lifts the final restrictions on July 19, this rebound will accelerate.
In addition, Haldane said, there are very strong fiscal and monetary responses that may generate more demand than needed to recover from the crisis and “add significant further impetus to an economy that has already rebounded rapidly.” .
He said that the third growth driver was spending on private sector savings that people and businesses had hoarded during the crisis. “As public and private financial fuel is injected into macroeconomic engines that are already running very hot, the result is likely to be macroeconomic overheating.”
Earlier this month, Haldane voted against a majority vote Bank of EnglandThe Monetary Policy Committee met for the second time in a row and advocated the lower limit of quantitative easing.
Haldane admitted that his inflation assessment may be wrong and that inflationary pressures may “disappear” as other members of the Bank of England Monetary Policy Committee expected. But he predicts that the Monetary Policy Committee is more likely to change its mind soon and may have to tighten policy to raise interest rates beyond what is needed.
Speaking of other members of the Monetary Policy Committee and central bank governors facing rising inflationary pressures in other economies, Haldane said: “People’s minds are changing, and the reason is… because the data is moving.”
“Considering how fast the ground under our feet moves, I would say to observe this space very carefully.”