Food retailers thought inflation would peak earlier, says Bank governor Bailey
Andrew Bailey was speaking to the Lords Economic Affairs Committee.
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Your support makes all the difference.Food sellers have been more likely than the makers of the food to underestimate how far the cost of food will soar, the governor of the Bank of England has said.
Andrew Bailey said that the Bank’s experts still expect the rate of food price inflation to fall, but added the Bank’s agents have been getting mixed messages from different parts of the supply chains.
“Food prices were obviously very heavily affected by Ukraine. But at the world level food prices actually peaked last summer,” he told the Lords Economic Affairs Committee.
“So why is it taking longer in this era than it has in the past for this effect to come through?
“Notwithstanding the fact … more so by the retailers than the food producers, we’ve been told for some time: No no, they’ve reached the peak, the rate of inflation is going to come down.
“And then (our) contacts come back later and say ‘Well, sorry, we got that one wrong.”
We still think the rate of inflation is going to come down but it's taking a lot longer than we expected
He added: “We still think the rate of inflation is going to come down but it’s taking a lot longer than we expected.”
It came as Swati Dhingra, Mr Bailey’s colleague on the Monetary Policy Committee (MPC) which sets interest rates in order to combat inflation, said that retailers are not passing falls in prices onto customers.
However she added that this does not necessarily mean that the retailers are profiteering.
The balance of evidence suggests that the large cost pressures are slowing and profit margins are not rising in the UK
The Bank of England has examined the accounts of six major supermarkets which make up around three-quarters of the UK grocery market and found their profits are not rebounding as expected given falling cost pressures.
She said: “This data indicates that profits and profit margins are not rising as might be expected in the event of margin rebuilding by supermarkets.
“This differs from the United States where there has been some reported increase in company profitability, which has been interpreted as a factor contributing to inflationary pressures.
“The balance of evidence suggests that the large cost pressures are slowing and profit margins are not rising in the UK.”
She added that much of the lag in the pass-through of cost reductions is down to the prices of imported goods in the UK, which “possibly peaked later than energy price inflation”.
The Bank of England has upped interest rates at the MPC’s last 12 meetings, bringing the base rate from 0.1% to 4.5%, in an attempt to tame runaway inflation.
Ms Dhingra further said interest rates hikes are feeding through to mortgage rates as expected, but added that the pass-through to borrowers has been delayed due to the large numbers of homeowners on fixed-rate deals.
“But it is already starting to add to ongoing pressures for families that are renting or negotiating in the mortgage market,” she said.
She said recent economic data “indicate that the economy is starting to recover from the large supply shocks – albeit with ongoing hardship for some of the most disadvantaged individuals and families in our society”.
But she warned the “cost-of-living crisis is not over”.
“Although monetary policy cannot directly address underlying structural and distributional issues, it can return inflation to target sustainably in the medium-term. Indeed we are committed to ensuring this happens,” she said.