Bank of England Warns Against Being “Seduced” by Temporary Inflation Decline, Stresses Importance of Long-Term Price Stability

According to Bank of England Chief Economist Huw Pill, there is a risk of being “seduced” by certain measures of inflation that suggest a slowdown before more persistent price pressures are addressed. Speaking at a web presentation to the BOE’s regional agents, Pill cautioned that officials should not draw too much comfort from external factors driving inflation, as they must ensure that inflation remains at target on a lasting and sustainable basis. He highlighted that the “persistent components” of inflation are declining due to restrictive interest rates, but warned against being overly optimistic until further evidence of easing trends in wage growth, services inflation, and other labor market indicators becomes available. This suggests that while recent developments in inflation may offer some comfort, it is too soon to consider reducing the level of monetary policy restriction.