I’m sure the Bank of England would have preferred to have had more to celebrate on the 25th anniversary of its independence earlier this month. The central bank’s Monetary Policy Committee has one goal, to which everything else is subordinate: to keep overall consumer inflation at 2%. But it has been a year since the inflation rate was that low and the story since then has been one of a remorseless and dramatic rise. Consumer-price inflation is now 9%. The bank forecasts that it will top out at 10%. Perhaps, though overall wages rose by 7% in the first quarter, adding to inflationary pressures.
This week, BOE Governor Andrew Bailey and a few of his colleagues were summoned before the Treasury Select Committee of the House of Commons to explain the failure to contain inflation. “Not our fault,” was the gist of the answer. Bailey claimed - wrongly - that 80% of the price increases were beyond the MPC’s control. Dramatic supply shocks driving up the costs of energy and traded goods could not have been predicted, and there wasn’t much the bank could do about them anyway. Nor could the MPC have realized that the UK labor market was as tight as it has turned out to be. Anyone claiming otherwise is doing so with the benefit of hindsight.