- The process of disinflation is intact and not complete
- We need to maintain monetary policy restrictiveness
- Core inflation is falling again after having stalled
- I hope inflation expectations will fall with slowing inflation
- Underlying inflation should be the focus of policy
- Disinflation is not as rapid or convincing as hoped
- Underlying inflation looks more like 2.5%, not 2%
- Monetary policy stance is still restrictive
- We are not seeing a collapse in activity, forward looking indicators do not suggest this is likely
- Productivity improvements are cyclical and mechanical
- Trend productivity not going back to where it was
- Disinflation in underlying services is flattening
- We should be cautious on the last mile
- Rates are currently a bit too low
- Holding rates at this level should be enough to control inflation
Bank of England Chief Economist Huw Pill has signalled that while the battle against rising prices is moving in the right direction, there’s still more to do to get back to the 2% target. He is cautiously optimistic but wary of declaring an early victory.
Pill notes that the process of disinflation remains intact, though he admits it has been neither as rapid nor as convincing as policymakers had initially hoped. While the headline figures may fluctuate, the “underlying” figures is what the Bank is focused on.
Pill suggests that underlying inflation is currently tracking closer to 2.5% rather than the BoE’s 2% target. A particular point of concern is the “flattening” of disinflation within the services sector, which remains stubborn despite broader price cools. On a positive note, core inflation has begun to fall again after a period of stagnation, providing some evidence that the current policy is working.
Despite some calls for aggressive rate cuts, Pill’s stance remains firmly rooted in restrictiveness. He argues that the current monetary policy stance must remain tight to ensure expectations continue to trend downward alongside slowing inflation.
Addressing the broader health of the UK economy, Pill dismissed fears of an imminent “collapse in activity.” Forward-looking indicators suggest stability rather than a sharp downturn.
This article was written by Giuseppe Dellamotta at investinglive.com.
