The FT has a post this morning that says:
The article says:
The Bank of England is struggling to bring inflation back to target because price rises are increasingly driven by people who are immune to the pressures of higher interest rates, a senior policymaker has said.
Catherine Mann, speaking at a Financial Times event on Wednesday, said there was “a lack of consumer discipline” to rein in businesses' pricing power in areas of the services sector where prices were often “sticky”, as they reflect conditions in the domestic economy rather than global shocks.
What she really means is that the wealthy are immune from the pressure that higher interest rates impose on the rest of the population, and even gain from them, and as a result of their considerable, and relatively excessive, spending power within the economy inflation is continuing at above 2% and there is no real prospect of that changing.
The consequence is that she admitted that the single tool that she claimed was available to the Bank of England to control inflation - which she said is the interest rate, whilst conveniently ignoring both quantitative easing and the massive current quantitative tightening programme - is not able to bring the rate of inflation down at present because the richest in the UK are insisting on continuing to spend. This is despite the massive economic pressure being brought to bear on those with lower incomes, either from downward pressure on wages, which the Bank of England is heavily promoting, or from increased interest rates.
You would think, as a result, that Mann would realise that keeping interest rates high was a futile exercise. Far from it, though: she is still an advocate for raising them.
What is not hinted at in the reports of what she said are any indications that she thought that other tools might be brought into use to tackle this issue. Raising taxes on the wealthy would, of course, be one way to address this issue. That is glaringly obviously necessary, given the problem she outlines. I am sure it was not said.
Raising taxes on the wealthy and cutting interest rates would work even better. I think we can be sure that was not said either.
Why am I sure that these things were not said? That is because I have long felt that the Bank is engaged in class warfare against those who work for a living and live on moderate earnings. Nothing persuades me otherwise.
The comments Mann made confirm that the policy she supports of making the wealthy relatively wealthier is working and that, as a result, she wishes to punish those less well-off even more. You can't make callousness on this scale-up, but it appears to be happening.
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Catherine Mann is as deranged as Liz Truss if she believes all that nonsense. Perhaps both are heavily influenced by the malign entities at 55 Tufton Street.
Thank you, both.
I don’t disagree.
Richard may be surprised to read that, about a year ago, Danny Blanchflower thought Mann would make a better chief economist than Pill.
Not what he tells me….
Well, all this is beyond me, Richard.
I’d understood that the inflation of the past couple of years was caused mainly by supply shocks and profiteering and that all the BoE interest rate rises were useless at controlling it actually contributing to it.
Now, apparently, the wealthy are preventing it from falling because they;re spending too much… But, I ask, are the goods and services they’re purchasing those included in the ‘basket’ by which inflation is measured?
And I thought that the wealthy were supposed to ‘spend’ so that their wealth can trickle down to us poorer mortals.
This elderly lady is mightily confused… 🙂
Your confusion is entirely reasonable
But yes, what they spend can be in the basket
Meals out, holidays, hotels, big cars and the like are all in there
I had my 1st hol in 2 years – Southern Spain. The place we were renting was visited by a prospective renter let’s call him Simon. He was organising a wellness-week (??) in March for what I deduced to be rich people (he was renting high-end villas with catering) – he liked his clients so much that … he wanted to be well away from them when not giving “wellness” lessons (??). I have a pretty good inkling what he would pay to rent the place we were staying in – indicative of what the rich (it was clearly the London crowd) would pay for “wellness”. (by the way – the vultures were Griffon Vultures).
On a related note, I used to enjoy, from time to time a good wine and a cigar. Serious wines are now out of reach. What would cost me in say 2000 for a high end Mosel-Saar-Ruhr, +/-10 – 15 euros is much more like 200euros. Cigars? I could buy in Spain a nice Siglos V for Euro10 – they now cost Euro100, EACH!. I know cos I was in a shop in Spain the other day & nearly fell over at the prices. The owner & I commiserated each other at the price of a good smoke.
I ask for & expect no sympathy. But this price inflation is caused by the rich. Not just in Europe or the US but China as well. & I’d suggest that it has a knock-on effect all the way through. One also needs to recognise the impact of the climate disaster on prices: olive oil prices in Spain have gone up by 3x in the past 4 years due to drought (5 years & counting in Catalunya).
I certainly agree that “Raising taxes on the wealthy would, of course, be one way to address this issue.”. Lower interest rates – yup. As for the callousness, it is a function of having loads of money, it erodes empathy & enables people to pay daft prices for daft things.
Meals out, holoidays, hotels, big ars and the like are all in there
Made me laugh your spling is as bad as mined
Oops
An edit may follow
I’m old enough to remember back in the 70’s there was a higher rate of VAT on ‘Luxury’ items so things like large/expensive cars, Hot Tubs, private Swimming Pools etc could all be subject to a ‘Luxury Tax’ plus of course a ‘Mansion Tax’
Now of course back in the 80’s there was a certain logic to increasing interest rates with a large number of mortgaged homes and almost everyone on variable rate mortgages but these days with a lower percentage of Mortgaged Homes and most borrowers on fixed rate mortgages economists are starting to look like those sad middle aged men who still think a Mullet is fashionable
You don’t think that fixed rate deals are driven by the expected path of future interest rates?
Does anyone in this blog understand any economics?
In the US fixed rate deals are for 30 years
Tell me how that fits with your theory?
Vat has obviously changed. We pay Vat on toilet rolls but not on caviar. So strange that toilet paper is seen as a luxury. Maybe we should go back to using newspaper.
Maybe the Financial Times is not worth the toilet paper it is written on.
Richard, messages from the BoE seem to change depending on who is doing the talking and what the subject is. Explanations on the causes of inflation or why it isn’t falling as rapidly as elsewhere eg US. What I have heard from the BoE and indeed others in the Media makes you very sceptical about explanations offered.
I have heard for example: BoE lost control of the Money Supply; QE used for GFC and the Pandemic; Supply-chain issues coming out of the pandemic; Energy and War in the Ukraine; Profiteering by Businesses; Govt increased spending & the lack of Fiscal constraint ; Wage increases causing wage/cost spiral; and too much Demand in the economy causing “over-heating”!
Now it seems the reason the Bank can’t declare victory over inflation is that the “Wealthy” or those in the top 5th of the income distribution are not suffering enough to get inflation down.
I can accept inflation may have multiple causes but after a while you begin to doubt what the BoE says and to question its motivations.
BoE needs a mandate review.
Agreed
The Bank of England needs an inquiry. It is failing to achieve – or even trying to achieve – its monetary objective of growing the economy. It’s taking its remit too literally. It should remember it’s fully independent. At least it’s meant to be.
It is not fully independent. Please get your facts right. Or you will be blocked for time wasting.
Hi Richard. Thanks for reading my comment. Rishi Sunak’s remit letter of 27 Oct 2021 states, “… and the Bank of England’s operational independence is absolute.”.
Jeremy Hunt’s states in the first paragraph of his remit letter of 17 November 2022, “… and the Government is fully committed to the Monetary Policy Committee’s independence.”. He repeats this wording in his remit letter of 22 November 2023.
Wiki says, “In 1998 it became an independent public organisation, wholly owned by the Treasury Solicitor on behalf of the government, with a mandate to support the economic policies of the government of the day, but independence in maintaining price stability.”.
In practice, I believe the strongly worded remit undermines the Bank’s independence.
Read section 19 of the Bank of England Act 1998 which says both ate talking nonsense
Richard, in response to you response to Carl Stevens:
What percentage of mortgage deals are on 30-year fixed rates? I believe these are by far the minority not the majority.
In the UK and Europe what % of deals are on 5 year rates and below, including flowing rate offerings? I believe these are the vast majority.
How do you think 30 year deals in the US are priced?
Using an atypical example does not discredit the broader picture.
Did you notcie I referred to the US when making that comment
The vast majority are
Here as you note shorter is more common but the claim made was still wide of the mark
So is yours
Mortgage deals here are priced at base rate plus a bit – to pretend otherwise is false. That is why the Bank of England has been so grossly irresponsible. We too need fixed for life deals and at low rates. They could not then wage class warfare on people as they are.
My understanding of us mortgages is that they start out fixed for a few years, then renogitiated at a fixed rate for the next period, then the customer shops around, maybe wants to borrow to improve and takes another fixed deal. And so on. It may be 30 years without being what we regard as standard variable, it’s a succession of fixed rate periods. That’s not the whole picture but it’s a lot closer than the claim that 30 year fixed throughout is typical.
That is what we do
The US does fixed for the whole term, usually with one of the two state backed mortgage providers.
I think you need to investigate again
I think this blog is spot on.
The high interest rate and low taxation duo helps the rich to spend AND save – it helps with consumption and capital accumulation whilst leaving everyone else struggling to see how this adds up.
I mean how can the well off lose in an economy like this? They can’t.
Capital accumulation at the level we are looking at can only help one other group of people – our politicians who also run the BoE through private funding donations.
It’s all sewn up nicely.
Contrast that with the rest of us, consuming less, at one point being paid less, about to go into recession and all that that entails = less income for the government to turn around and say it does not have enough money to run the services we need in the parallel universe of lies we live under. We are locked in that negative cycle; the rich are locked into their more positive one.
Again, the whole thing is frankly obscene.
The best examination I’ve read about austerity and the thinking behind favouring the rich over everyone else is in Clara Mattei’s ‘The Capital Order’ (2022).
It really must be read because the sense of superiority of the rich, the sense of their entitlement and discrimination against those of more modest means amongst pro-austerity policy makers in inter war England and Italy is astonishing and so redolent of the faulty thinking we endure today. It is class warfare as Richard has described it many times before.
The initial analysis she offers is correct – higher rates are not reducing inflation…. and her explanation makes sense (although there are some other factors at work, too).
She then says that changing a single policy interest rate is not a very effective way to deal with this; also true.
Her conclusion is also logical – “if my tool is less effective then I need to use it more aggressively to get the impact I want”. Logical within the narrow mandate/tools the bank has but oh so terribly wrong. Ever thought about searching for other tools to add to your tool bag?
She had a golden opportunity to explore what other tools the BoE (and government more broadly) could use… but failed. Sad.
I hardly think her explanation makes sense.
If you’re wealthy you have savings. When the interest rates goes up you get more income to spend from the return on your savings. That income comes from those, without savings, who borrow and pay those with money a nice little earner in interest. High interest rates certainly not going to reduce the wealthy’s propensity to spend.
Then there’s the little matter, discussed here previously, that increasing interest rates directly increases inflation by pushing up rents.
I really can’t see that any of her analysis makes logical sense. I somehow doubt you do either Clive 😉
Let me be clear, her prescription – higher rates – is a disaster.
All I point out is that in her own (and the BoE’s) terms, what she says is internally logical.
“Raising rates is ineffective in changing rich people’s behaviour” (true)
“Raising rates is the only tool we have” (true – as things stand and THIS is a huge problem)
“So, if rich people are not adjusting behaviour we need to kick poor people even harder to make them cut back even more spending to bring overall inflation down”…. in other words “if the price of cake keeps stubbornly rising (as the rich still kepp buying it) then, to keep overall inflation down, we need to stop the price of bread rising… which means pushing poorer people into hunger.”
So, yes, her medicine of higher rates will work… but at a HUGE cost. The operation will be a success but the patient will die.
It is an appalling logic…. but on the other planet that is neoliberal economic modelling this makes sense.
Thanks
Catherine Mann is wrong. For a start, the rate of inflation over the last nine months has been 0.81%, equivalent to an annual rate of 1.08%. Although the current annual headline rate is 4.0% (as it’s based on the CPI in Jan 2023), without the Government’s recent rise in duty on alcohol and tobacco it would only be 3.6%. The annual rise in inflation of mortgage interest payments is currently 40%, but the MPC members ignore that for two reasons: it’s only in the RPI – and they caused it.
Hi
Mercedes stopping production of A & B class models in 2025. Cheapest will be C class current price about £65k!
Density of G wagens in St Moritz is mad at £140k a pop! Mercedes has recognized this split in wealth a few years ago! Conservative actions have made this even more damaging.