EVERY now and again, the Bank of England Governor invites journalists in for lunch. The last one I went to, we sat in the “Governor’s Dining Room”, a wood-panelled chamber in the heart of the vast building. There was a clock ticking, as we picked away at our English asparagus and salmon, just the two of us.
It took my mind back to sitting in my tutor’s study at university, at the top of an ancient college staircase. In the presence of a great mind, and for an hour or so, the rest of the world shut out, just the two of us.
That must be how the Bank and its Governor liked it, how they saw themselves, as a brain’s trust divorced from the little folk and their lives, and the sometimes unseemly goings on, around them. While academics can afford to be like that, it’s impossible to make such a case for the Bank. It ought to be on top of everything, absolutely knowing what is occurring and why. Better still, predicting with accuracy what will happen and how.
That is never the impression conveyed by Andrew Bailey, the present governor, nor the rest of his crew. This week, supermarket bosses trooped into the Commons to be roasted by MPs from all sides, furious at their delivery of record profits during a cost-of-living crisis.
How can that be? Well, only if a significant portion of those inflated prices is down to greed on the part of the retailer, passing off an increase as necessary and due to circumstances beyond their control, when in truth they’re exploiting the downbeat mood music to make even more money.
Instead of the capitalist chiefs being publicly humiliated, the politicians were unable to land any serious blows. They lacked the material they required at their fingertips, whereas the supermarket titans were well-rehearsed, smoothly able to counter any question without killer evidence, with ease.
Partly, it was the fault of the select committee, rushing to interrogate and to be seen to interrogate, putting their desire to grandstand ahead of pursuing the facts. They could, should, have waited for a forthcoming Competition and Markets Authority report, due next week, on pricing at the forecourts. That, at least, would have provided ammunition where the sale of petrol and diesel is concerned.
As well, though, they ought to have been supplied with the evidence they required. In front of them should have been an authoritative, detailed study of the issue from the Bank of England, from Bailey and his team.
While the MPs were struggling, Christine Lagarde, president of the European Central Bank, was addressing a central banking forum in Portugal. Said Lagarde: corporate profits were the biggest factor driving up prices last year and will be again in 2023. She was concerned that firms would again “test” consumers’ appetite for paying higher prices despite a steep decline in most business costs in recent months.
Lagarde was supported by research from the IMF. It had analysed inflation across Europe and found that corporate profits had played a significant role in pushing inflation higher. “Rising corporate profits account for almost half the increase in Europe’s inflation over the past two years as companies increased prices by more than spiking costs of imported energy.”
Previously in financial shocks, said Lagarde, “firms had tended to absorb rising costs in profit margins, as slower growth made consumers less willing to tolerate price hikes. But the special conditions we experienced last year turned this regularity on its head. The sheer scale of input cost growth made it harder for consumers to judge whether price hikes were caused by higher costs or higher profits, fuelling a faster and stronger pass-through.”
Lagarde concluded that without a shift in corporate behaviour, interest rates would need to stay higher for a longer period than previously forecast.
That was the ECB. Meanwhile, back in dear old Blighty, the Bank of England has yet to produce a study calculating the influence of corporate behaviour on inflation and says it has no plans to embark on a similar study to the one conducted by the ECB.
Somebody is doing the country a terrible disservice here, and it’s not our elected representatives. It’s not their fault if they take on the might of big business without the necessary weaponry. They can’t be blamed if the Bank of England chooses to ignore one of the most pressing issues of our time, and is allowed to do so.
“How did you find your salmon? Would you like some strawberries?”
Chris Blackhurst is the author of Too Big To Jail: Inside HSBC, the Mexican drug cartels and the greatest banking scandal of the century (Macmillan)
