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Pill re-emphasises the three things the BOE is watching for inflation persistence

  • Pill says its crucial we re-enforce 2% anchor and that has to be the focus of policy.
  • In the UK with the small open economy we are more of a price taker in the global economy than the US or Eurozone for example. We have seen increases in prices of consumer goods, energy, food etc.
  • That has a number of effects: Focuses attention on the things we can control: the domestic implications of those shocks and that brings us to second round effects.
  • Big focus of attention is profit markups etc. Bank trying to look through external impulses to try and identify drivers of domestic pressures and have identified three - services inflation, wage dynamics and the tightness of the labour market.
  • Would emphasise those three things are indicators of the inflation persistence - not necessarily the causal story or drivers.
  • Identifying those three areas does not mean we look at one indicator in a particular area. There are often different signals. Trying to separate signal from noise and to identify persistance at the monpol horizon.

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