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The days of cheap food may be over, the Bank of England’s chief economist said on Monday, warning that supermarket prices would still be rising much faster at the end of the year than overall inflation.
In its latest monetary policy report, published last week, the central bank set out the findings of recent meetings it held with food producers, processors and retailers, who said they still faced higher inflation on input costs than usual. This was partly because some had entered long-term contracts to secure supplies when global commodity prices were at a peak, but also reflected continuing energy and wage pressures.
Huw Pill, during a live Q&A session on Monday, said price cuts for staples such as eggs and milk could become more widespread but no “transformation” would arrive to take the pressure off poorer households. Food price inflation was likely to remain in double digits at around 10 per cent at the end of the year before falling further in 2024.
“That’s still not a very comfortable level — certainly for us when we’re looking at trying to reduce the overall level of inflation down to our 2 per cent target. Having food price inflation running at 10 per cent is clearly not really compatible with that on a lasting basis,” he said.
Even when food price inflation had subsided, he added, the level of supermarket prices would still remain much higher than when the price shocks started, bringing associated “social and other stresses”.
“Unfortunately, the days of seeing food prices fall . . . does seem to be something we may not be seeing for a little while yet if in the future at all,” he said.
Speaking days after the BoE raised interest rates to a fresh 15-year high of 5.25 per cent, Pill described monetary policy as a “powerful” but “blunt” tool to fight inflation — with central banks unable to mount “surgical strikes” at particular sectors or to protect certain groups in society.
Seeking to avoid the controversy stirred earlier in the year, when he suggested people would need to stop seeking higher wages to cope with higher living costs, Pill said, “I don’t think it’s the case that we should be pointing fingers or assigning blame to individual parts of the UK economy.”
The BoE thinks there has been no significant change in the share of national income going to either wages or profits since inflation began to shoot up, and does not want to describe the current persistence of inflation as being a result either of a so-called “wage price spiral” or of “greedflation”.
“It’s not a question of blame,” Pill said, adding that the task for monetary policy was to balance the aggregate level of demand and supply in the economy, in order to return inflation to target.
