(Adds comments from BoE chief economist, details on inflation)
LONDON, April 25 (Reuters) - Bank of England (BoE)
Deputy Governor Ben Broadbent said on Tuesday that central banks
should not ignore measures of money supply, but claims that
their huge bond-buying programmes stoked the global surge in
inflation are not backed up by evidence.
Some politicians and analysts have blamed the waves of
central bank money created by the BoE and other central banks
since the 2008 financial crisis, and more recently during the
COVID-19 pandemic, for the leap in prices.
Broadbent said policy had not been optimal in hindsight -
but he cited supply-chain problems caused by the pandemic and
the surge in energy prices after Russia's invasion of Ukraine in
2022 as clearer causes of the jump in prices than money supply.
British consumer price inflation hit its highest rate in
more than 40 years in October at 11.1%, and remained above 10%
in the most recent data for March.
"As an explanation for the inflation we've experienced I
think this fits the actual data better than the single fact of
strong household money growth during the pandemic," Broadbent
said in a speech to the National Institute of Economic and
Social Research, a think tank.
Some economists say the BoE, U.S. Federal Reserve and the
European Central Bank missed signals from an increase in money
supply that should have served as an inflation warning.
"In major economic areas, money supply growth was
running at rates which would have set the alarm bells ringing
not many years earlier. But somehow central banks thought that
this did not matter," Roger Bootle, the chairman of consultancy
Capital Economics, wrote in the Telegraph newspaper on Sunday.
But Broadbent said that even a six-month head-start for the
BoE's tightening cycle would have lowered peak inflation by only
around half a percentage point.
While the BoE did not ignore money supply, he said it needed
to be kept in context with other economic variables, and that
quantitative easing in practice was different to the 'helicopter
drop' of money discussed in economic text books.
"Certainly the very strongest claims - that QE inevitably
leads to rapid growth of commercial bank deposits (M4), on a par
with that in the central bank's balance sheet, and that this, in
turn, inevitably leads to excessive inflation - are not well
supported by the evidence," Broadbent said.
Britain was now suffering from second-round effects of
inflation, but not a wage-price spiral, he said.
The BoE and other central banks are still trying to
assess how much further to raise borrowing costs to ensure the
jump in inflation does not get embedded in their economies.
BoE Chief Economist Huw Pill said that as part of that
process British businesses and individuals would need to accept
that their earnings had fallen in inflation-adjusted terms.
"Somehow in the UK, someone needs to accept that they're
worse off and stop trying to maintain their real spending power
by bidding up prices, whether higher wages or passing energy
costs through on to customers," Pill said in an episode of
Columbia Law School's Beyond Unprecedented podcast that was
released on Tuesday.
(Reporting by David Milliken and Andy Bruce; Editing by William
Schomberg and Paul Simao)
Messaging: @brucereuters))
