The governor of the Bank of England is in a bit of a spot. He just doesn’t seem to be able to get inflation pointing the right way, let alone anywhere near the target rate of 2 per cent. Andrew Bailey’s committee has (finally) worked out that annual price rises in double digits are quite as ghastly now as they were the last time we had them.
He’s at something of a loss to know what to do, so he has been reduced to exhortation. Businesses, he said on the radio last week, really shouldn’t raise prices by more than they absolutely have to. You see, if their prices rise by more than inflation, well, we’ll get even more inflation won’t we?
To say this is a disappointing piece of analysis from the country’s central banker is something of an understatement. As he should know, in a properly working market economy, providers of goods and services charge what the market will bear. In conditions like today’s, many businesses are not raising prices, or only a little, in a desperate attempt to stay in business.
Suggestions of price gouging produce a hollow laugh. As Martin Williams, chief executive of Rare Restaurants, which includes the chains Gaucho and M, put it on the BBC: “If restaurants had reflected the increased costs they face in the past year, as Mr Bailey suggests, a simple side salad would be priced at £20.”
If it’s not the fault of greedy capitalists, then, according to Mr Bailey, the blame lies with us oldies. We really shouldn’t have stopped work so early. Those who quit between 50 and 64 are happily consuming, pushing up demand but not producing, and hence stoking inflation. In Baileynomics, “That would call for a higher level of interest rates to dampen demand.”
Whether or not his audience at the London School of Economics bought this argument is not recorded. But blaming greedy businesses and slacking early retirees for our current mess is not a good look, especially when the root cause (as I have said ad nauseam) is Mr Bailey’s folly in keeping almost-free money far beyond the point of prudence. He sowed the wind, and is now reaping the whirlwind.
Neil Collins and Jonathan Ford publish a free Podcast, A Long Time In Finance, every Friday on Spotify and Apple.
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