BOE Chief Says It’s Problematic to Call Inflation ‘Transitory’

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Bank of England Governor Andrew Bailey said it’s increasingly difficult for policy makers to call inflation “transitory,” noting that the term has fallen into “disrespect” after repeated shocks.

The U.K. central bank chief said the BOE “is on a tightening path” for interest rates after inflation hit a 30-year high and a surge in energy prices and taxes threatens to push it up further in the coming months.

“Although you can use the word transitory with good reason, of course if you get shock after shock, then transitory doesn’t look transitory,” Bailey said on a panel discussion at an IMF meeting in Washington on Friday.

He added that “the word transitory is beginning to become a bit of a word of sort of disrespect.”

Bailey started ringing alarms about inflation in October, shortly before the BOE became the first major-economy central bank to raise interest rates. Since then, he’s been warning about the risk that price increases become “persistent” and lead to an upward spiral that would leave it stuck above the BOE’s target.

Policy makers started describing inflation as “transitory” when the end of coronavirus lockdowns first led to increases in prices. Then wages started rising in the U.K., and the war in Ukraine threatened oil and natural gas supplies.

“There was a very good reason why it was regarded as transitory at the time,” Bailey said. “There were reasons to believe that it would end and that we would go back to a degree of normality.”

“The problem is we’ve now had a second shock,” he said.

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