Business groups question Bank of England Mann’s ‘greedflation’ claim
Business groups yesterday said many firms had no choice but to raise prices to offset high costs in response to a Bank of England rate setter claiming companies are pursuing so-called ‘greedflation’ by pumping up prices to exploit strong consumer spending.
Catherine Mann, an external member of the Bank’s rate setting monetary policy committee (MPC), said she is concerned firms’ “strong pricing power” risks keeping inflation high.
“Even in the face of the cost of living crisis there are still a lot of people out there who are willing to pay higher prices, and firms are willing to set their prices high,” she told Bloomberg.
Companies have been squeezed by soaring energy prices, wage bills and transport costs over the last year, strengthening incentives for them to raise prices to protect their bottom lines.
Producer price inflation – a broad measure of input cost increases calculated by the Office for National Statistics – is running at more than 14 per cent, above consumer price inflation of 10.1 per cent.
Bank Governor Andrew Bailey and the rest of the MPC’s ten straight interest rate increases to a 15-year high of four per cent has also lifted the cost of repaying debt for firms.
A big chunk of UK businesses’ debts are on floating rates, meaning their interest bills are highly responsive to changes to official interest rates.
Mann today reiterated she thinks “more needs to be done with rates,” a position she has voaclised a few times over the last month.
Markets suspect the MPC will bump rates up 25 basis points at its next meeting on 23 March.
“Although many businesses have been increasing their prices, they have also absorbed a significant level of cost increases into their margins,” Alex Veitch, director of policy and public affairs at the British Chambers of Commerce, told City A.M.
Companies that do take advantage of pricing power typically hold high market share and are big players in their industries.
Britain’s small businesses “have been hammered by a cost of doing business crisis since inflation started soaring around this time last year,” Tina McKenzie, policy chair of the Federation of Small Businesses, told City A.M.
“Small business margins are balanced on a knife-edge and small firms are only raising prices as a last resort to keep themselves afloat, having already absorbed as much as they possibly can in order to stay competitive,” she added.
There have been instances of big companies hoisting prices far and above headline inflation.
Regulator Ofcom has launched a probe into mobile phone providers after it emerged customers were facing an up to 14 per cent bill increase.