🔔 Has the Bank of England bottled it?

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"some further modest tightening in monetary policy is likely to be appropriate in the coming months"

"some further modest tightening might be appropriate in the coming months, but there were risks on both sides of that judgement depending on how medium-term prospects evolved,"

 Rarely have markets been this surprised by the MPC's dovish tone.

Today's 16bp day-on-day drop in expectations for Bank Rate in six months time is the 2nd largest since 2009 (as far back as OIS data go). Only in Nov 21, when the MPC didn't hike, has the drop been bigger. pic.twitter.com/DNlef0lcto— Samuel Tombs (@samueltombs) March 17, 2022 

Cost-push inflation is a type of inflation caused by substantial increases in the cost of important goods or services where no suitable alternative is available.

Higher prices are then the result, as costs of production increase due to decreased aggregate supply. (Wiki)

"...the very material negative impacts of higher commodity prices on real household incomes and activity"

“Higher energy bills and commodity prices will make people poorer.

Which leaves them with less money to spend on stuff they want because they're paying more for the stuff they need”

"The cure for high prices is high prices"

The idea is that the higher inflation rises, the more it squeezes living standards and lowers household spending power.

By destroying demand, unemployment ticks higher and growth slows, leaving companies less able to boost prices.

By depressing demand for other goods, the energy price spike becomes dis-inflationary. As a result, interest rates need not rise so fast or so far, assuming that consumer inflation expectations are kept in check.

The inflation snake ends up eating its own tail.

All that helps explain why the debate about whether the BOE should increase rates by half a point has melted away. Not one member of the committee vote for a super-sized rise this week, a big contrast with February when four people on the nine-member panel did.

Deputy Governor Jon Cunliffe even voted to keep policy unchanged on Thursday.

“The bank, and Mr. Cunliffe in particular, is clearly very conscious that higher current inflation is doing the heavy lifting in reining in domestic demand and thus inflationary pressures -- thereby capping inflation expectations in the medium term and reducing the need for the bank to move rates in anything more than a ‘modest’ way,” Nomura’s George Buckley and Jordan Rochester wrote in a note on Thursday.

With the Bank of England raising interest rates for a third consecutive monetary-policy meeting on Thursday, attention now turns to what the government can do via fiscal policy to alleviate the cost-of-living crisis facing Britons.

Chancellor of the Exchequer Rishi Sunak should abandon April’s planned tax increase, to avoid shell-shocked consumers from driving the economy into recession.

 Bunch of nerds chatting in the Macrodesiac Discord this morning. pic.twitter.com/9TPqJdenIy— David Belle (@davidbelle_) March 18, 2022