Bank of England rate-setter Swati Dhingra expects the pressure on UK households from sticky inflation to ease after sharp falls in cost inflation for producers.
“There are some promising signals that CPI inflation should ease,” Dhingra said in a speech at a UK Women in Economics Network event on Tuesday. “One of the best leading indicators... of the long run evolution of prices in country, is that producer price inflation typically tends to lead changes in consumer price inflation.”
Dhingra used her speech to show a long-running tight correlation between producer price inflation and the costs facing consumers. While consumer price inflation is stuck at 8.7%, indicators of producer cost increases have dropped dramatically.
Food remains the biggest holdout, with most other items of consumption now showing signs of following the PPI, she said. That may be due to cost of imported goods and wages, which are starting to ease.
Along with fellow dove Silvana Tenreyro, Dhingra has rebelled on the Monetary Policy Committee by voting to end the BOE’s quickest tightening cycle in more than three decades. That’s despite her colleagues on the MPC voting to step up the pace of interest rate rises last week.
Dhingra said there are still concerns about food-price inflation but added that supermarkets are not enjoying the “runaway” profits associated with so-called greedflation.
“I think it’s not very convincing to argue, at least as of yet, that grocery inflation is driven by greed inflation.”
