London Daily

Focus on the big picture.
Sunday, Mar 26, 2023

Controlling inflation is the battle of our times — and fortune will favour the bold

Controlling inflation is the battle of our times — and fortune will favour the bold

The Bank of England appears to be as confused as everybody when it comes to the outlook for interest rates. At the beginning of the month, a speech by the Bank’s Governor Andrew Bailey triggered hugely conflicting headlines. They ranged from “Bailey downplays talk of sharp rise in interest rates” to “interest rates may need to go higher” and through to “interest rates may have peaked”.
Meanwhile, members of the Bank’s rate-setting Monetary Policy Committee (MPC) like Catherine Mann and Swati Dhingra have adopted rather different views. I applaud the differences of opinion now emerging on the MPC. For too long it was open to accusations of groupthink. At least there is now evidence of genuine debate, even if Bailey’s own speech appears to offer a little too much by way of ambiguity.

Nevertheless, such debate suggests that we live in febrile economic times. No longer can we enjoy the combination of moderate growth and low inflation which characterised much of the period during which the Bank of England has controlled interest rates.

Such uncertainties are far from being uniquely British. At the beginning of the year, American investors began to believe that US policy rates were close to peaking. With inflation apparently tamed, there was genuine hope that before the year was out the Federal Reserve would be cutting interest rates again. This prompted a big rally in the stock market and a drop in longer-term borrowing costs. But since then American economic data has unexpectedly strengthened. There have been robust gains in employment and surprisingly strong increases in so-called “core” inflation, a measure that strips out the most volatile prices (for example, food and energy).

In response, the Federal Reserve’s chair, Jerome Powell, stated that “the ultimate level of interest rates is likely to be higher than previously anticipated”. He added that “if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes”.

This is strong stuff by central banking standards. The Fed has been in the vanguard of applying the monetary brakes, doing more than either the Bank of England or the European Central Bank. As yet, however, the US economy just isn’t doing what the Fed wants it to do. Powell clearly does not want to go down in history as the central banker who let inflation back in, but in the absence of any significant economic response so far, he risks one of two unpleasant outcomes: sustainably higher inflation or, in a bid to prevent such a result, a deep and unpleasant recession.

For the UK, the situation is arguably even more awkward. There’s a good chance that headline inflation will fall rapidly later this year, courtesy of declining gas prices. Yet pay growth is now relatively robust: excluding bonuses, wages in the private sector rose at an annual rate of 7.3 per cent in the final three months of 2022, a rate of increase hardly consistent with a two per cent inflation target over the medium term. Unless wage growth itself slows rapidly over the coming months, lower energy prices could trigger a reacceleration in consumer spending. What should the Bank then do? Cut rates because of lower headline inflation? Or raise rates because of robust wage growth and, just possibly, stronger domestic demand that later could lead to higher core inflation?

The Americans hoped they were in the former camp but have discovered they may be in a version of the latter camp. As for the UK, it is easy to pretend that the inflation we have suffered has stemmed only from malevolent foreign forces over which we have no control.

Imagine, however, if every country took the same view. We’d then be forced to conclude that inflation originated from Mars or Jupiter, not from planet Earth. While external shocks can be an important trigger for domestic inflation, its persistence ultimately depends not just on the length of those shocks but also on what the monetary authorities do in response. Those who act with sufficient confidence may ultimately keep inflation under control. Those who prefer, instead, to wait may discover they have opened a Pandora’s Box of domestic inflationary difficulties.

Stephen King (@kingeconomist) is HSBC’s Senior Economic Adviser. His new book, We Need to Talk About Inflation (Yale), will be published in April
Newsletter

Related Articles

London Daily
Close
0:00
0:00
Gordon Moore, a co-founder of Intel Corporation, died at 94
You're Beautiful - James Blunt (Boyce Avenue acoustic cover)
In a dramatic U-turn against His Government: Judicial Overhaul Legislation Must Be Halted, Says Israeli Defense Minister Yoav Gallant
You Are So Beautiful
Powell: Silicon Valley Bank was an 'outlier'
Postmodern Jukebox European Tour Version
Bordeaux town hall set on fire in France pro democracy protest
An old French tune (by Georges Brassens) Pomplamoose ft. John Schroeder
Police violence in Paris
Sattahip Motor Show 20
Paris: Some of the police are stepping down and showing solidarity with the protesters.
SONATE AU CLAIR DE LUNE - Moonlight sonata
Donald Trump arrested – Twitter goes wild with doctored pictures
A kiss to build a dream on
NYPD is setting up barricades outside Manhattan Criminal Court ahead of Trump arrest.
Wiz Khalifa - See You Again ft. Charlie Puth, Furious
Credit Suisse's Scandalous History Resulted in an Obvious Collapse - It's time for regulators who fail to do their job to be held accountable and serve as an example by being behind bars.
Wonderful Tonight - Eric Clapton (Boyce Avenue acoustic cover)
Home Secretary Suella Braverman tours potential migrant housing in Rwanda as asylum deal remains mired in legal challenges
Mean Blues
Goldman Sachs cuts outlook for European bank debt over Credit Suisse crisis
La Chansonnette
Paris Rioting vs Macron anti democratic law
Pattaya Addicts
'Sexual Fantasy' Assignment At US School Outrages Parents
Franz Liszt - Liebestraum - Love Dream
Orbán Viktor: the restructuring of the power relations in the whole of Europe is taking place
Dream a little dream of me
Credit Suisse to borrow $54 billion from Swiss central bank
Tu Vuo' Fa' L'Americano - Hetty & the Jazzato Band
The BBC problem about China
Unchained Melody sung like you've NEVER heard!
Strikes-Hit UK Pledges 94 Billion Euros In Cost-Of-Living Budget
Dave Brubeck - Take Five
Russian Hackers Preparing New Cyber Assault Against Ukraine
Édith Piaf - Non, Je Ne Regrette Rien (Sofie)
"Will Fly Wherever International Law Allows": US Warns Russia After Drone Incident
Rondo Alla Turca
UK face biggest fall in spending power for 70 years
Kiss of fire
Jeremy Hunt insists his Budget will get young parents and over-50s back into work
Ed Sheeran - Perfect (Amadeus violin cover instrumental)
If this was in Tehran, Moscow or Hong Kong
Tom Jones - I´ll Never Fall In Love Again 1967, 1989, 2001
Announcing GPT-4
Israel Cachao López - Guajira Clásica
TRUMP: "Standing before you today, I am the only candidate who can make this promise: I will prevent World War III."
Edward Maya - Stereo Love (feat. Vika Jigulina) (Extended Mix)
Drew Barrymore
Strauss - Radetzky March - Karajan
China is calling out the US, UK, and Australia on their submarine pact, claiming they are going further down a dangerous road
La vie en rose
A brief banking situation report
Despacito (Piano Cover) - Peter Bence
We are witnessing widespread bank fails and the president just gave a 5 min speech then walked off camera.
The Temptations - My Girl (Smokey Robinson Tribute) 2006 Kennedy Cent
Donald Trump's asked by Tucker Carlson question on if the U.S. should support regime change in Russia?.
Orlando Cachaito Lopez Redencion
'No relation to the American SVB': India's SVC Bank acts to calm depositors amid brand name confusion.
Edith Piaf - NON, JE NE REGRETTE RIEN
Good news: The U.S. government is now guaranteeing all deposits, held by, Silicon Valley Bank, and the funds are available as of today
RADETZKY MARCH-2008-Wien, New Year Concert
Silicon Valley Bank exec was Lehman Brothers CFO
Only you (And you alone)
In a potential last-ditch effort, HSBC is considering a rescue deal to save Silicon Valley Bank UK from insolvency
Beautiful in White x Canon in D (Piano Cover by Riyandi Kusuma)
Saudi Arabia has announced a major breakthrough in diplomacy with Iran after two years of intense talks
Strangers In The Night
BBC Director General, Tim Davie, has apologized, but not resigned, yet, following the disruption of sports programmes over the weekend
Charles Aznavour - La Boheme
A Mississippian man, who was once considered a “ticking time bomb,” has lost a whopping 165 kilograms! What motivated this incredible transformation?
Summer time
Elon Musk Is Planning To Build A Town In Texas For His Employees
Sting and Stevie Wonder - Fragile (from Sting's 60th birthday concert)
The Silicon Valley Bank’s collapse effect is spreading around the world, affecting startup companies across the globe
Aux Champs Elysees
City officials in Berlin announced on Thursday that all swimmers at public pools will soon be allowed to swim topless
Stand By Me - Ben E. King (Boyce Avenue acoustic cover)
Fitness scam
La Mer (Beyond the Sea) – Avalon Jazz Band
Market Chaos as USDC Loses Peg to USD after $3.3 Billion Reserves Held by Silicon Valley Bank Closed.
She
A primitive judge in Australia sparked outrage when he told a breastfeeding woman to leave his courtroom for being “a distraction"
Nathalie Song by Enzo Petrachi Stjepan Hauser Cello
Barcelona is feeling the heat as they face corruption charges over payments to former vice-president of Spain's referees' committee, Jose Maria Enriquez Negreira
Shape of My Heart - Sting (Boyce Avenue acoustic cover)
Banking regulators close SVB, the largest bank failure since the financial crisis
Radiohead - Creep
Watch: “They are wounded but unbowed, unbreakable.”
Quizás,Quizás,Quizás - Andrea Bocelli - Jennifer Lopez
Silicon Valley Bank: Struggles Threaten Tech Startup Ecosystem"
Perhaps, Perhaps, Perhaps - Multi-Couples
The unelected UK Prime Minister Rishi Sunak, an immigrant himself, defends new controversial crackdown on illegal migration
Pentatonix Havana
Old clip of Bill Gates saying Ukraine is a big, fat, corrupt sinkhole is going viral
Paula Cole - Autumn Leaves
Man’s penis amputated by mistake after he’s wrongly diagnosed with a tumour
Oscar Benton Bensonhurst Blues
Motorist fined £650 after council ‘paints disabled bay around his car
OH NANANA vs ABUSADAMENTE
Nina Simone - ”I Put A Spell On You”. Vezi aici cum cântă Jeremy Ragsd
NIGHTWISH - The Phantom Of The Opera
Motorshow 2016 Tanjay Negros Oriental
Monica Bellucci - Ti Amo
Michael Jackson - Billie Jean Milena The Voice France 2018
Michael Buble (Help Me Make It Through The Night) feat Loren Allred
Memories Canon In D - Maroon 5 (Boyce Avenue piano acoustic cover)
Matteo Simoni - Marina
Maroon 5 - One More Night
Maroon 5 - Memories
Mark Knopfler - Brothers In Arms (Berlin 2007 Live)
Mark Knopfler & Emmylou Harris - Romeo And Juliet (Real Live Roadrunni
Marina, Marina - The LUCKY DUCKIES intimist live concert at Guimarães
Major Lazer & DJ Snake – Lean On Mauranne The Voice France 2016
Love Theme from Romeo and Juliet - Joslin - Henri Mancini, Nino Rota
LoLa & Hauser - Love Story
Linkin Park Jay-Z - Numb Encore (Live 8 2005)
Hallelujah Mennel Ibtissem, The Voice France Leonard Cohen
Leonard Cohen - Dance Me to the End of Love
Leonard Cohen & Natasha Rostova - Dance me to the end of love
La casa de papel - Bella Ciao
La Camisa Negra
L'italiano (Toto Cutugno) - The Gypsy Queens
Juanes - La Camisa Negra
Jonathan and Charlotte - Britain's Got Talent 2012 Live Semi Final - U
John Powell - Assassin's Tango
Joe Cocker - You Can Leave Your Hat On (LIVE in Dortmund)
Joe Cocker - Unchain My Heart 2002 Live
Joe Cocker - A Whiter Shade Of Pale
Jay Z & Alicia Keys - Empire State of Mind LIVE
Jason Mraz - Im Yours (live)
Jarrod Radnich - Bohemian Rhapsody - Virtuosic Piano Solo
James Blunt - You're Beautiful
James Blunt - You're Beautiful & Bonfire Heart (Live at The Nobel Peac)
If You Go Away - Helen Merrill & Stan Getz (Tribute to Virna Lisi)
I'LL BE MISSING YOU
I Say a Little Prayer
Hotel California ( Eagles ) 1994 Live
Historia de un amor - Luz Casal. Vezi interpretarea Biancăi Sumanariu
Here Comes The Sun - The Beatles (Boyce Avenue acoustic cover) on Spot
Heart - Stairway to Heaven Led Zeppelin - Kennedy Center Honors
HAVANA by Camila Cabello Zumba Pre Cooldown TML Crew Kramer Pastra
HAUSER and Señorita - I Will Always Love You
HAUSER - Waka Waka
HAUSER - Sway
HAUSER - Lambada
HAUSER - Historia de un Amor
HAUSER - Despacito
Great Pretender
Georgia May Foote & Giovanni Pernice Samba to 'Volare' - Strictly Come
Gary Moore - Still Got The Blues
GIPSY KINGS VOLARE Penelope Cruz
Fugees - Killing Me Softly With His Song
French Latino - Historia de un Amor
For A Few Dollars More The Danish National Symphony Orchestra (Live)
Flashdance • What a Feeling • Irene Cara
Filip Rudan - “Someone You Loved” Audicija 4 The Voice Hrvatska Sez
Eric Clapton - Wonderful Tonight
Enya - Only Time
Enrique Iglesias - Bailando (English Version) ft. Sean Paul
Enrique Iglesias - Bailamos
Elena Yerevan Historia de un amor
Ed Sheeran - Shape of You (Official Music Video)
Ed Sheeran - Perfect Symphony [with Andrea Bocelli]
Ed Sheeran - Perfect (Official Music Video)
Easy On Me - Adele (Boyce Avenue 90’s style piano acoustic cover) on S
ERA - Ameno
ELENA YEREVAN- Cancion Del Mariachi-IN STUDIO-2017 DPR
Dust In The Wind - Kansas (Boyce Avenue acoustic cover)
Don't Let Me Be Misunderstood
Despacito x Shape Of You - Pentatonix
Deep Purple - Child In Time - Live (1970)
David Foster When A Man Loves A WomanIt's A Mans World (SealMichael Bo
Dance me to the end of Love ( Pi-Air Design )
Coolio - Gangsta's Paradise (feat. L.V.) [Official Music Video]
Conquest Of Paradise (Vangelis), played on Böhm Emporio organ
Cielito Lindo
Chico & The Gypsies - Bamboleo
Canción Del Mariachi - Antonio Banderas, Los Lobos • Desperado
Camila Cabello - Havana (Audio) ft. Young Thug
Camila Cabello - Havana ( cover by J.Fla )
California Dreamin' - The Mamas & The Papas José Feliciano (Boyce Ave
Buster Benton - Money Is The Name of The Game
Hallelujah Pentatonix
Bobby McFerrin - Don't Worry Be Happy (Official Music Video)
Bob Dylan - Knockin' On Heaven's Door Emilia The Voice Kids France
Besame Mucho - Cesaria Evora
Ben E. King - Stand by Me Sax Cover Alexandra Ilieva Thomann
Bella Ciao
Bella Ciao - INSTRUMENTAL
Beautiful in White x Canon in D (Piano Cover by Riyandi Kusuma)
Bad Romance - Vintage 1920's Gatsby Style Lady Gaga Cover ft. Ariana Savalas & Sarah Reich(1)
BELLA CIAO 2020 - KARAOKE ITALIANO
BAMBOLEO - Gipsy Kings • Antonio Banderas, Katya Virshilas
BAILANDO (original)
Awesome Ukrainian yodeler - SOFIA SHKIDCHENKO (with English subtitles)
Avicii - The Nights
Atom - The Great Gig in the Sky
Aretha Franklin - (You Make Me Feel Like) A Natural Woman (Official Ly
Antonio Banderas - Cancion del Mariachi (Desperado)
André Rieu - Zorba's Dance (Sirtaki)
André Rieu - Can't Help Falling In Love
André Rieu & Mirusia - Ave Maria
Andrew Reyes Elton John - Don't Let The Sun Go Down The Voice 2020 (
Andreas Kümmert Whiter Shade Of Pale The Voice of Germany 2013 Showd
And I Love You So
All About That Bass - Postmodern Jukebox European Tour Version
Alan Walker - Faded (Piano Cover)
Ain't No Sunshine -- Bill Withers (cover by Canen 12 y.o.)
African music
Adriana Vidović - “Creep” Audicija 4 The Voice Hrvatska Sezona 3
Adriana Vidović - “Believer” Nokaut 3 The Voice Hrvatska Sezona 3
A Fistful of Dollars - The Danish National Symphony Orchestra and Tuva
4 Beautiful Soundtracks Relaxing Piano [10min]
2CELLOS - Whole Lotta Love vs. Beethoven 5th Symphony [OFFICIAL VIDEO]
2CELLOS - Smooth Criminal (Live at Suntory Hall, Tokyo)
2CELLOS - Smells Like Teen Spirit [Live at Sydney Opera House]
2CELLOS - Despacito [OFFICIAL VIDEO]
13 Year Old Girl Playing Il Silenzio (The Silence) - André Rieu
094.All About That Bass
00 - SADNESS PART 1
(Ghost) Riders In the Sky (American Outlaws Live at Nassau Coliseum, 1
(Everything I Do) I Do It For You - Bryan Adams (Boyce Avenue ft. Conn
What a wonderful world
Moon river
×