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Monday, August 14, 2006

Inflation Report at the Bank of England

Last night I was at the Bank of England Inflation Report seminar in Birmingham. I go to these every quarter so that I can get a feeling for what is going on in the West Midlands economy as well as the UK economy as a whole. One of the interesting areas for discussion was that the Bank saw no signs of widespread pay pressure.

However I was talking to the Agent, John Bartlett and asked him whether there was a fear in the Bank about inflationary psychology taking hold. This is where if people start feeling that faster inflation is not just temporary but here to stay for longer, then they tend to start to anticipate this in their wage claims and the way that they set their prices.

Autumn does tend to mark the start of the pay round and although it is a concern within the Bank that this inflationary psychology might take hold if energy prices do ratchet up markedly over the winter and that it starts to impact on input price inflation figures and that organisations start to pass on increased energy costs on to consumers through consumer prices.

However in the last review of consumer sentiment it doesn't look as if people do think that this is likely to happen, but it was interesting to note that the biggest rise took place in January of this year just when energy prices shot through the roof.

Something to watch for in the future

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