“Because of this base effect, even if the bill itself goes up to a higher level, it goes up by less over a year than it did in October.
“The annual inflation rate therefore falls sharply from 96 per cent to 52 per cent. The contribution to consumer price inflation from the energy bill will nearly halve.”
Bailey noted that the outlook is more uncertain looking further ahead but said the Bank’s “guesstimates” that household energy bills will start to fall by April 2024.
However, he noted we should not expect energy bills to come down to previous levels “any time soon”.
“From a cost-of living perspective, it is the level of what people have to pay that matters. There will be some relief, but energy bills will remain a challenge for many people, particularly for those on lower incomes,” Bailey said.
He also pointed to the unprecedented rate of food price inflation, which was nearly 17 per cent higher in January 2023 than the previous year and noted that this is a significant challenge for people.
“Charities tell us that the profile of their users has changed. They see more people in employment facing difficult choices and having to turn to food banks for help,” Bailey commented.
Using these points to illustrate why the Bank has been raising the base rate, Bailey said: “People should not have to worry about inflation in this way.
“I am afraid monetary policy cannot make the shock to our national real income go away. But what monetary policy can – and must – do is to make sure that the inflation that has come to us from abroad does not become lasting inflation generated at home.
“Homemade inflation will not make us any better off as a country. Those with weak bargaining power will fall further behind.”
jane.matthews@ft.com
