MNI BRIEF: Rate Hikes Not Feeding Through Faster - BOE Pill

Higher rates not taking longer, or shorter, to feed through to the economy than previously assumed and neither higher earnings nor higher profit margins are disproportionately driving inflation, according to Bank of England Chief Economist Huw Pill.

Some US Federal Reserve work has suggested that interest rate hikes may be feeding through more rapidly and pundits have talked about higher inflation being due to firms' widening profit margins, called "greedflation" by some, but Pill was dismissive of both assumptions, saying the Bank still assumes rate hikes will take 18 to 24 months to feed through in full. (MNI POLICY: Fed Worried Shorter Lags Require More Tightening)

Pill said that the key question the Monetary Policy Committee was tackling was whether higher inflation "last into that 18 month-to-two-year window where interest rate decisions today will begin to work against any inflation that persists," adding that "if we look at the overall shares in national income, how much is going to wage earners, how much is going to profits .. those shares haven't changed very much over the last few years."

In his remarks Pill again stressed the unreliability of the MPC's longer-term forecasts and left the door open to further tightening if need be.