BoE's Mann warns on risk of 'greedflation' as firms exploit price rises to hold margins

Bank of England policymaker Catherine Mann on Tuesday said she was concerned UK companies could be using the cost of living crisis to hide price increases, known as “greedflation”.

Mann, who sits on the central bank's rate-setting monetary policy committee, warned that interest rates would have to rise beyond their current level of 4% due to companies holding so much power over prices.

Her comments echo those of the European Central Bank last week, which said it was closely monitoring potential price gouging of consumers, amid mounting worries that increases were being driven by companies using surging inflation as an excuse to widen profit margins

UK inflation has fallen slightly from 11.1% to 10.1%, according to official figures, but Mann said she was more focused on core inflation – which strips out items such as food and fuel.

Mann told Bloomberg TV that said she was especially concerned about the extent to which "there is strong pricing power among firms and acceptance of those price rises by a lot of consumers”. Despite this, there were “still a lot of people out there who are willing to pay higher prices, and firms are willing to set their prices high”.

Despite raising interest rates at each of its last 10 meetings, Mann said more needed to be done to prevent high inflation being embedded.

A weak pound was also a “very important ingredient” pushing up inflation, as it raised the cost of imports of goods, and energy. The UK, Mann pointed out, was a “small open economy” that imported a lot of products, and the pound would be vulnerable if US and eurozone interest rates continued to rise.

“There has been a quite a hawkish tone coming from the Federal Reserve and ECB,” Mann said. “An important question in regards to the pound is how much of that existing hawkish tone is already priced into the pound. If Fed hawkishness is not priced in, the pound could fall further.”

“I worry about the supply side of the UK economy. It really is striking how slow growth is in the UK – much slower than what we observed for the US or for the euro area. Brexit is a factor on the supply side and on pricing power.”

Reporting by Frank Prenesti for Sharecast.com