‘No 70s-style inflation spiral’ says Financial institution of England as a result of households have much less to spend

There will be no return to a 1970s style spiral inflationbecause the wage increases are being eaten up by the rising cost of essential goods, high-ranking Bank of England politicians said.

Some economists have warned that wage increases will go through Labor shortage could create a “wage-price spiral” in which higher wages drive up commodity prices and prompt other workers to demand their own wage increases.

Three of the bank’s most senior figures told Treasury Select Committee MPs that such a scenario – which played out in the late 1970s – is not likely today.

“There is no danger of a wage-price spiral in the UK,” said Michael Saunders, an external member of the bank’s nine-member rate fixing committee. “Talking about a return to the 70s is completely out of place.”

“The economy has changed in many ways since then, and another major change is institutional policymaking with an independent central bank, a clear mandate and an effective set of tools.

However, he said he voted to withdraw some of the bank’s stimulus measures because the labor market was “tight” and average wages had risen.

Mr Saunders was in the minority who voted to tighten monetary policy last week who created money in the financial markets.

Bank of England Governor Andrew Bailey said the labor market situation was “very different” from more than four decades ago.

“The collective bargaining position varies a lot,” Bailey said, referring to the sharp decline in the proportion of workers who are union members.

When asked if an inflationary spiral was likely, Mr. Bailey said, “We are very far from the 702, shall we say so.”

Dr. Catherine Mann, another member of the bank’s monetary policy committee, told MPs on Monday that companies may not be able to pass the rising cost of materials and labor on to customers as consumers will not have additional disposable income despite wage increases in some sectors.

“Will consumers spend enough on goods and services if part of their wallet is spent on energy and food? The answer probably isn’t, and so companies can put any cost increase one-on-one on their future prices are questionable.”

The bank has been asked by some analysts to hike rates to cool the economy and lower inflation, but has so far resisted. Any move to hike rates would be controversial as the economy is still smaller than it was before the pandemic and the latest data shows that growth has slowed.

Mr Bailey defended the guidance he had given the bank prior to the bank’s recent interest rate decision. His words had been interpreted as a sign that the bank was ready to raise interest rates. Mr Bailey maintained his claim last month that the bank “must act” if inflation stays above target over time.

The statement was “subject to change” and merely a repetition of the bank’s public mandate to keep inflation close to the target rate of 2 percent.

Mr Bailey said the decision to hold rates was “very close,” but stressed that he never said the bank would raise rates at the meeting.

“As a guide, in terms of emphasizing the primacy of the inflation target and the link to medium-term inflation expectations, I felt it was crucial that we gain a foothold on this point,” he said.

Chelsea gave cash to over 2,000 households. Here is how they spent it.

Last fall, in the middle of the second COVID-19 surge, the city of Chelsea brought to life The largest guaranteed income project in the country, shifting relief efforts from community food distribution locations to simply transferring money to thousands of residents in the hardest hit community – with no restrictions.

The program was synchronized with the help of local non-profit organizations Chelsea eats – Almost every eighth household in Chelsea gave a debit card between $ 200 and $ 400, which was fully replenished every month for six months, depending on household size. The cards can be used anywhere that Visa is accepted. The residents could spend the money almost anywhere.

However, a new study suggests that the program worked as proponents intended.

A Report released on Monday Harvard Kennedy School’s Rappaport Institute for the greater Boston area found approximately $ 1.5 million – or 73.3 percent – of the $ 2.1 million distributed through the Chelsea Eats program in grocery stores, markets , Restaurants and other places where food is the main product. Supporters say the results help emerging research from similar experiments with guaranteed income that the recipients use the money for basic needs such as food.

“Government programs are most effective when they give people the tools and the freedom of choice to make the best decisions for themselves and their families,” said Jill Shah, president of the Shah Family Foundation, which finances and manages the Chelsea Eats. Program has contributed.

The initiative – which was funded primarily by the City of Chelsea from government COVID-19 relief funds, along with minor contributions from the Shah Family Foundation, Massachusetts General Hospital Center to Improve Community Health, and the United Way of Massachusetts Bay and Merrimack Valley – Financed debit cards for 2,074 households at risk from mid-November to April. Most of the recipients reported Job loss or financial difficulties due to the pandemic.

While Monday’s new report doesn’t show exactly what recipients bought, researchers were generally able to categorize spend based on supplier data on the cards – with grocers being the clear market leaders. The researchers said the results were not surprising since “the applicants were largely recruited from users of the pantry”.

“While it is likely that most of these purchases will be groceries, it is of course possible to purchase many other items, such as cleaning supplies, from these locations,” they wrote in the report.

Almost exactly 50 percent of the expenditure was made in grocery chains. In fact, 32 percent of all spending at Market Basket was made, “mostly at the Chelsea location,” the report said.

Another 11.6 percent was spent in wholesale chains like BJ’s and Costco, and just over 5 percent of the spending was in local grocery stores and convenience stores. Almost 7 percent of the money went to local restaurants, with Dunkin ‘and McDonalds leading the way.

The researchers noted that they are working on conducting a more detailed survey of beneficiaries to assess “the extent to which the program is leading to greater food adequacy and a reduction in food insecurity”.

Retail made up nearly 21 percent of spending, with big names like Walmart, Target, Burlington Stores, Amazon, Family Dollar, CVS, and TJ Maxx making up more than half of the spending in that category.

A little more than 4 percent of spending went to providers classified as “Utilities and Professional Services”, mostly utilities like Comcast, Eversource and National Grid, or cellular operators like T-Mobile, MetroPCS and AT&T. A significant minority ” previously reported in their survey that they were lagging behind due to overdue payments on bills or the phone was disconnected.

Transportation costs such as gasoline, MBTA tariffs and carpooling made up 1.3 percent of the expenditure. And only 0.4 percent came from liquor stores and smoke shops, although the authors admitted that alcohol and cigarettes can be bought in grocery stores and convenience stores, so spending on these products could be “a little higher”.

They also found that only $ 1,947 was spent on rent – despite the pandemic additional pressure on the city’s housing market – probably because only a few landlords accept Visa.

Harvard Professor Jeffrey Liebman, director of the Rappaport Institute, described the program as an overall achievement in “helping Chelsea families buy groceries and other essentials”. He also noticed that the size of the program – which was significantly larger than that well-known project with a guaranteed income of 125 recipients in Stockton, California – “shows that direct payments can be delivered on a large scale.”

Chelsea City manager Tom Ambrosino told Boston.com in an email Monday that the city is hoping to find a way to extend the six-month program – or in some form or another. However, funding remains a challenge.

“We just need more money,” said Ambrosino. “I’m currently working with the Shah Foundation and the Council to find out.”

The program is currently funded until the beginning of summer. According to the Shah Foundation, they expect more news on this front in the coming weeks.

Receive the browser notifications from Boston.com:

Activate breaking news notifications right in your internet browser.

Turn on notifications

Great, you’re signed in!