If wage and price expectations pan out, inflation could stay strong well into 2023 — Catherine Mann

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Bank of England Policy Officer Catherine Mann said on Friday that wage and price expectations, if met, are ingredients for broader inflationary pressures that could remain strong for longer, perhaps well into 2023. Residual strength in both wages and prices is likely to continue through well into 2022, he added.

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“There are headwinds facing these wage and price expectations.”

“Inflation data since November has not been consistent with the stabilizing rate of inflation that was the forecast at the time.”

“If the effects of apparent supply-demand imbalances continue in 2021, we could see another rise in wages and prices in 2022, leading to results in which CPI inflation remains strong for longer.”

“Policy actions by other central banks have cross-border ramifications that will be important for the MPC.”

“The next steps could exhibit a shallower path.”

“To the extent that monetary policy actions now lower expectations, and to the extent that any slowdown in global prices is transmitted to UK inflation, the steps could show a shallower path.”

“We will make an assessment regarding the February policy only after reviewing the staff investigation.”

“To the extent that financial markets are already warning decisions, the next steps could show a shallower path.”

“Changing expectations is the first defense against reinforcing wage and price dynamics.”

“Our goal is to bring inflation down to target so that workers can enjoy real wage gains from their work.”

“What monetary policy needs to do now is temper expectations of wage and price increases for 2022 to prevent them from being factored into business and consumer decision-making.”

“To the extent that headline inflation supports UK domestic inflation, the monetary policy reaction would need to be more severe than appropriate for domestic conditions alone.”

“Going into 2022, current wage and price expectations emerging from the DMP survey are inconsistent with the 2% target, and if they are met in 2022, they are likely to keep inflation strong for longer.”

“The ingredients seem to be in place for inflation to stay strong longer, but the costs being built into prices to create a reinforcing dynamic is not inevitable.”

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