href="https://www.bankofengland.co.uk/about/people/megan-greene/biography">
Megan Greene
Member of the Monetary Policy Committee
The extent to which the latest energy price shock feeds into more persistent inflation through second-round effects remains a key consideration for policymakers. The presence of slack in the labour market could suggest that wage pressures will remain contained, limiting the scope for second-round effects. But is this likely to be the case?
In this speech, Megan challenges this argument, drawing on a wide range of wage indicators to assess recent developments in pay growth and the likely path ahead for wages and domestically-generated inflation. She then turns to broader measures of labour market slack to examine whether current conditions are likely to restrain second-round effects via the wage-setting channel.
Speech
Introduction
Thank you for inviting me to the LSE to speak. It’s nice to be back here—I often studied in your library when I was an undergraduate in the US working in London for the summer. Come to think of it, I may have snuck in so please don’t alert the authorities.
Over the past few months, a lot has happened in the world of geopolitics…and yet very little has fundamentally changed. Passage through the Strait of Hormuz remains beset by attacks and potential new chokepoints in shipping have emerged such as the Bab el-Mandeb Strait. Although Middle Eastern oil flows have at times returned to near pre-war levels, expensive and inefficient workarounds have kept energy prices high (Figure 1). Wholesale gas prices are close to triple their level at the start of the year, with oil spot prices just under double their early-January level. And the prices for refined products have remained elevated despite volatile spot prices. Even if the conflict in Iran ends tomorrow, we have already been hit by a protracted energy shock.
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