Bank of England’s Bailey sweats over risk of ‘sticky’ summer for inflation

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LONDON – Bank of England Governor Andrew Bailey said he was worried about the risks of “steady and stubborn” inflation over the summer after data showed food prices were still rising sharply despite falling to single digits in the headline rate in April.

Bailey, who this week came under fire from lawmakers after inflation spent eight of the previous nine months above 10%, sought to stress his commitment to returning price growth to the Bank of England’s 2% target.

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Data published earlier on Wednesday showed that the consumer price index rose 8.7% year-on-year last month. That was down from 10.1% in March and higher than 11.1% last October, but higher than expected by economists polled by Reuters.

It also left Britain with the joint highest inflation rate among the G7 advanced economies along with Italy, despite 12 consecutive interest rate increases by the Bank of England with more now seen as inevitable.

Bailey, speaking at a Wall Street Journal (WSJ) event, said the drop in inflation in April was “welcome” but the Bank of England should focus on food prices, which rose 19.0% in the 12 months to April, and core inflation. which collects steam.

He said that while inflation expectations were falling and companies were sending signals that they intended to slow their price increases, there were risks that inflation would only slowly decline from now on.

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Food companies have signed contracts that represent higher-than-usual costs after energy prices soared last year, meaning lower prices for raw materials could take a long time to reach consumers.

Bailey said: “The question for us is how….

But he said the word “spiral” is not the best way to describe how wage pressures and inflation interact.

High forward rate

Investors already seem to have made up their minds about the BoE’s next job, pricing in another quarter-point rate hike next month with a 100% certainty and putting a roughly 50-50 chance on the Bank’s rate hitting 5.5% by November, up from 4.5. % now.

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Bank of America and Japan’s Bank Nomura said they now expect the Bank of England to raise its key interest rate three times to 5.25% by September, while Credit Suisse and Citi see two more hikes, to 5%.

Many other monetary authorities are also grappling with how much more needs to be done to tame inflation.

The European Central Bank committed to raising borrowing costs again in June, and a long list of policymakers has said another move in July or September is likely.

But the US Federal Reserve is seen as likely to have peaked in borrowing costs with the next move likely to cut later this year, according to investors.

Asked at a Wall Street Journal event whether Prime Minister Rishi Sunak aims to halve inflation this year, as he promised voters, Bailey said it was too early to be sure.

“I think we’ll have to see how the news and the evidence unfold,” he said.

Bailey has repeated the Bank of England’s message in recent months that it is watching economic data when making interest rate decisions, having previously indicated that it is likely to continue to raise borrowing costs.

“Our absolute commitment is that we will bring inflation back to the target level,” he said.