It was as if Bank of England monetary policy committee member David Blanchflower, had been meandering onthe road the Damascus. He is known as the committee’s arch dove, voting to lower the rate of interest when his colleagues on the committee voted for it to move upwards. But earlier this month he, along with the rest of the committee, voted to up the rate of interest.
What prompted such a change in direction? Yesterday he explained.
He said: “The rationale for my decision to vote for a rate rise this month was to ensure that inflation expectations remain anchored, given rising food prices, recent further increases in oil prices, more robust world growth, and the March inflation outturn.” He added: “It is difficult to interpret what the data are actually telling us about future inflationary pressures at present, although they do seem to point to an upside risk.”
But, lurking there beneath the newfound talons of a hawk, still sits the soft eiderdown of a dove’s feathery coat. For Mr Blanchflower still talked about the weakness in the labour market. It’s been the relatively muted rate of wage inflation that encouraged him to vote to lower the rate of interest. Yesterday he said: “It appears that wages are the dog that hasn’t barked. My view is that wages are not going to increase much any time soon.”
Mr Blanchflower says that the low level of wage inflation is largely down to immigration.
But while the man from the Bank of England told all, it appears retailers too are finding they are able to change their mindset. But for them, it’s more like Dick Whittington returning to old London, but this time it’s as if they really have found a high street paved with gold.
According to the CBI, the high street is booming again. Every month it asks its retail members whether sales are up or down on “this time last year.” The balance forms the CBI distributive trades index. In May the index managed 31 points, that’s down on April’s impressive score of 44, and one point down on the index in March, but we would then have to wind back the clock to 2004 to find the last time the index was so high.
But, it’s not data on sales that suggests retailers have been converted to a new way of thinking. Rather, it’s data from the CBI suggesting they found the ability to start upping prices again. In fact, the CBI index for prices compared to a year ago hit 33. That’s the highest score since 1998.
It’s good for retailers, and, while Blanchflower’s dog fails to bark, one assumes they must be purring at the combination of both rising sales and prices.
As you know, tough competition on the high street, which has kept prices down, or even promoted negative retail inflation, has been a principal factor behind low prices in recent years.
In fact the phenomenon of booming consumer demand and falling high street prices seemed to confound economic theory. But the latest data from CBI seems to suggest things are reverting to normal. As for the prognosis for the rate of interest, this news, if you excuse the corny expression, is yet more grist to the rate rising mill.
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