Central banks mustn’t forget the human cost of their war on inflation

Is it right for central banks to be waging all-out war on inflation when it’s hurting ordinary people who didn’t create the problem?

Widening interest rate-setting boards to include labour market economists and poverty specialists might produce fairer results for society

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Items for sale at a pawnbroker’s in London on March 8, amid the cost of living crisis in the UK. Photo: Bloomberg

David Brown

David Brown is the chief executive of New View Economics.

Published: 10:00pm, 8 May 2023

Recently, there was a shocking instance of how insensitive central bankers can be to the plight of ordinary folk facing extreme economic difficulties. With consumers still struggling to come to terms with the Covid-19 pandemic and the cost of living crisis, Bank of England chief economist Huw Pill made an unfortunate choice of words when he suggested Britons needed “to accept that they’re worse off” and stop bidding up wages and prices.

The Goldman Sachs alumnus’ words sounded out of touch with today’s harsh realities for many people. It begs the question of whether central bankers are doing a good job. Is central bank independence still fit for purpose or are reforms needed? Do our monetary mandarins, comprising former civil servants, academics and ex-investment bankers, live in too much of a cosseted bubble? Has inflation targeting lost relevance in a complex, multidimensional world?

It’s taken for granted that central bank independence is sacrosanct and that our monetary custodians are there to promote the right kind of conditions for sustainable, non-inflationary growth consistent with financial stability over the long term. This has generally meant keeping inflation under control at 2 per cent.