The days of cheap foods may be gone, said the Bank of England chief economist on Monday. He warned that prices at supermarkets would continue to rise much faster than inflation by the end of this year.
In its latest report on monetary policy published last week the central bank outlined the conclusions of recent meetings with food producers and processors, as well as retailers who reported that they were still experiencing higher input cost inflation than usual. The central bank attributed this to the fact that some companies had signed long-term contracts in order to secure supplies at a time when global commodity prices peaked, but it also reflected ongoing energy and wage pressures.
Huw Pill said during a Q&A on Monday that price cuts could be more widespread for staples like eggs and milk, but there would not be a “transformation” to relieve the pressure on poorer households. The food price inflation is likely to stay in double-digits, at around 10% at the end this year. It will then fall further in 2024.
“That is still not an acceptable level, especially when trying to bring the inflation rate down to our 2% target. He said that a food inflation rate of 10% is not sustainable.
He added that even after the food inflation has subsided, supermarket prices will still be much higher than they were when the price shocks began, leading to “social and other stress”.
“Unfortunately, food prices are not going to fall any more.” . . “This is something that we might not see for some time, if ever,” he said.
Pill, speaking days after the BoE increased interest rates to a new 15-year high rate of 5.25 percent, described monetary policies as a powerful but “blunt tool” to combat inflation – with central banks being unable to launch “surgical strikes” against certain sectors or protect certain groups within society.
Pill, who was trying to avoid controversysparked earlier this year when he suggested that people should stop seeking higher salaries to cope with rising living costs, said: “I do not think we should be pointing finger or assigning blame for individual parts of the UK’s economy.”
The BoE believes that there has not been a significant change in the percentage of national income allocated to wages or profits, since inflation started to rise. It does not wish to refer to the current persistence of the inflation as a result of either a “wage-price spiral” or “greedflation”.
It’s not about blame,” Pill said. He added that the goal of monetary policy is to bring the inflation rate back to the target level by balancing the demand and supply levels in the economy.