Former US Federal Reserve chairman Ben Bernanke says that the "significant inflation" experienced by the UK over the last years was "inevitable".
Speaking to the Treasury Committee, Bernanke said that inflation would have happened even if the Bank of England's processes had been better.
Speaking to the Treasury Committee, Bernanke said that inflation would have happened even if the Bank of England's processes had been better.
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00:00 Well, I think it's very important to understand that the shocks that set off the inflation
00:05 were global in nature.
00:07 They were related to the pandemic, to policies responding to the pandemic like lockdowns,
00:14 to the Ukraine war, to the oil price and food price shocks, to disruption of supply chains,
00:21 etc.
00:22 All these things were faced by all the market economies, all who have experienced inflation.
00:27 And I think avoiding inflation entirely would have been essentially impossible without throwing
00:33 the economy into essentially a depression.
00:35 So significant inflation was unavoidable, and every country, every market economy at
00:42 least experienced that.
00:45 Now if my proposals had been in force, I think that the committee would have had some useful
00:54 tools to think about how to respond to the inflation.
00:59 They would have perhaps understood better the modeling aspects and so on.
01:05 That being said, in a situation like we've had, judgment is very important.
01:11 And I'm sure the committee, without as much support as they would have liked from the
01:17 econometric side, applied their judgment and their insights into making policy.
01:23 So I cannot say, and it was not part of my remit, whether or not monetary policy in the
01:28 UK could have been significantly better or worse for that matter.
01:33 So again, to summarize, I think significant inflation was inevitable.
01:40 Whether or not the MPC could have done better, given what it knew at the time, is not something
01:45 that I can give you a useful information about.
01:48 It's very difficult to tell when a supply shock is coming and how long it's going to
01:54 last.
01:55 So for example, on the oil price shocks, markets which invest billions of dollars in trying
02:02 to guess what oil prices are going to do had no inkling that the increases in oil prices
02:07 would last as long as they did.
02:09 I think central banks in general made a collective mistake in thinking that the supply chain
02:16 disruptions would be taken care of relatively quickly by profit-maximizing firms who would
02:21 find replacement inputs or alternative ways to make their products.
02:28 In fact, the supply chain disruptions took a lot longer than most people, including again,
02:33 experts in the field, thought would happen.
02:36 I doubt, frankly, this was a unique situation, and I doubt that my recommendations would
02:42 have had a great deal of benefit there, except to say that obviously, I do recommend very
02:51 close attention to the supply side of the economy.
02:55 The Bank of England did look at, for example, the evolution of the pandemic.
03:01 They looked at the evolution of supply chains.
03:04 I guess I would just reemphasize the importance of that, in that inflation can come from either
03:09 the supply side or the demand side of the economy.
03:13 [BLANK_AUDIO]