The Bank of England's chief economist said that people in the United Kingdom must accept that they are poorer, otherwise prices will continue to rise.

Huw Pill said on a podcast in the US that there is a “reluctance to accept that, yes, we are all worse off“.

As he stated, workers responded to higher bills and costs with demands for wage increases, while companies responded by deciding to charge more.

Inflation in the United Kingdom stood at 10.1 percent in March. Although the rate fell from 10.4 percent in February, that does not mean prices are falling, but rather that they are rising at a somewhat slower pace.

In response to rising prices, the bank has raised interest rates, which affects the increase in the cost of borrowing money.

This move, in theory, should force people to reduce spending, so that demand for goods cools and price growth slows.

“Someone has to accept that things are worse”

As Pill said, people demanding wage increases and companies raising prices have contributed to inflation and caused even greater price growth across the economy, reports BBC.

“Somehow in the United Kingdom, someone has to accept that they are worse off and stop trying to maintain their real purchasing power by raising prices, whether through higher wages or passing energy costs on to customers and the like,” the economist adds.

As he points out, we are facing a reluctance to accept that.

“What we are facing now is that we do not have the willingness to accept that, yes, we are all worse off“.

Inflation and the world: Pill is not the only one who thinks so

Pill is not the first Bank of England official to warn that demands for wage increases contribute to inflation.

Thomas Moore, senior investment director at Abrdn, told the BBC that Mr Pill points to one-off factors driving inflation.

Thomas Moore, senior investment director at Abrdn, also says that there was a “massive expansion” of the money supply within the Bank of England as a result of the coronavirus pandemic.

“The problem is that monetarist economists believe that the money supply is the root of inflation, so at this moment a debate arises: are these one-off transitory factors or was this actually the cause of this underlying money supply problem?” Moore points out.

He adds that the Bank's goal is to persuade people to restrain their demands for higher wages.

Source: bizlife.rs