MNI BRIEF: Fed's Powell Still Committed To Basel III Endgame

MNI BRIEF: Fed's Hammack Says Rate Hike Not In Base Case

MNI BRIEF: EU's Tusk- States To Consult Wed On Tariff Response

MNI: Fed's Hammack Wants To Hold Rates Steady For Some Time

MNI BRIEF: Brazil's IPCA 4.56% In January As Energy Declines

MNI China Daily Summary: Tuesday, February 11

MNI: US REDBOOK: FEB STORE SALES +5.3% V YR AGO MO

MNI: CANADIAN DEC BUILDING PERMITS +11.0% MOM

US NFIB JAN SMALL BUSINESS INDEX 102.8

GERMANY: Economy Ministry Lowers 2025 Growth Forecast As Expected

MNI EXCLUSIVE: EU-Mercosur Deal Close, But Likely Short-Lived - Officials

GERMANY: Kukies Considers Potential Non-Implementation Of 2024 Suppl' Budget

© 1982-2025 MNI. All rights reserved.
Terms | Privacy
Log Out
Free Trial

BOE: Why does Mann think that second-round inflation risks are lower now?

BOE
Bank of EnglandCentral Bank NewsCEEMEABulletUKMarketsFixed Income BulletsForeign Exchange Bullets
  • On of Mann's main points is that she said last year don't be deceived by headline inflation falling back - and now her message is don't be deceived too much by the upcoming inflation hump ("yet"). This is largely because these moves are being caused by non-domestically driven demand pressures.
  • She thinks that the risks of second-round effects are lower now due to:
    • Distributions in the wage data - noting that "Expected wage growth is fairly tightly centered around a target-consistent 3% for goods and business-services firms. For consumer-facing firms, currently the greatest probability mass (in aqua) is closer to 4%, which likely is not target-consistent."
    • "I judge that the current and likely continued weak demand conditions will lead to a further loosening of the labor market which tend to follow non-linear dynamics. Thus, even if near-term inflation expectations firm on the back of the inflation hump, these factors likely will restrain pass-through to wages and prevent second-round effects from setting in."
    • Third on employer NICs: "Those firms who reported reduced employment growth as a margin of adjustment revised down their employment growth expectations significantly (solid versus hollow orange diamonds in Chart 9) following the Budget announcement. Cost increases more generally on firms, particularly smaller ones, expose cash flow vulnerability, with 39% of respondents to the BICS survey holding cash reserves sufficient for less than 4 months. Research suggests that such cash flow vulnerability is associated with job shedding, which may become more apparent as COVID support policies run off.
    • On pricing power: "I have focused on the most income and price elastic categories of products as the leading indicators of how consumer behavior can discipline firms’ pricing strategies. In the latest disaggregated data, the decelerations in these categories such as catering, culture, and hospitality have become more systematic."
    • "Looking beyond 2025, I judge that the dynamics of soft sales volumes, already observed for a year, will be accentuated as household savings rates remain high, both as an ongoing precaution against volatility in purchasing power and then also on account of heightened unemployment concerns. This likely soft consumption profile will constrain firms’ pricing power and will moderate pass-through of costs."
354 words

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
  • On of Mann's main points is that she said last year don't be deceived by headline inflation falling back - and now her message is don't be deceived too much by the upcoming inflation hump ("yet"). This is largely because these moves are being caused by non-domestically driven demand pressures.
  • She thinks that the risks of second-round effects are lower now due to:
    • Distributions in the wage data - noting that "Expected wage growth is fairly tightly centered around a target-consistent 3% for goods and business-services firms. For consumer-facing firms, currently the greatest probability mass (in aqua) is closer to 4%, which likely is not target-consistent."
    • "I judge that the current and likely continued weak demand conditions will lead to a further loosening of the labor market which tend to follow non-linear dynamics. Thus, even if near-term inflation expectations firm on the back of the inflation hump, these factors likely will restrain pass-through to wages and prevent second-round effects from setting in."
    • Third on employer NICs: "Those firms who reported reduced employment growth as a margin of adjustment revised down their employment growth expectations significantly (solid versus hollow orange diamonds in Chart 9) following the Budget announcement. Cost increases more generally on firms, particularly smaller ones, expose cash flow vulnerability, with 39% of respondents to the BICS survey holding cash reserves sufficient for less than 4 months. Research suggests that such cash flow vulnerability is associated with job shedding, which may become more apparent as COVID support policies run off.
    • On pricing power: "I have focused on the most income and price elastic categories of products as the leading indicators of how consumer behavior can discipline firms’ pricing strategies. In the latest disaggregated data, the decelerations in these categories such as catering, culture, and hospitality have become more systematic."
    • "Looking beyond 2025, I judge that the dynamics of soft sales volumes, already observed for a year, will be accentuated as household savings rates remain high, both as an ongoing precaution against volatility in purchasing power and then also on account of heightened unemployment concerns. This likely soft consumption profile will constrain firms’ pricing power and will moderate pass-through of costs."