Significant UK inflation was ‘unavoidable’, says Ben Bernanke
His comments come a month after a report by the former central bank boss found ‘significant shortcomings’ in models used by the Bank of England.
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Your support makes all the difference.The UK’s recent surge in inflation was “unavoidable” even if the Bank of England had made improvements to its systems, according to former Federal Reserve chairman Ben Bernanke.
Dr Bernanke also told MPs at Parliament’s Treasury Select Committee that groupthink was “not necessarily” to blame for many major economies failing to predict the full impact of inflation over the past few years.
His comments come a month after a report by the former central bank boss found “significant shortcomings” in models used by the Bank of England in its economic forecasts.
It is very important to understand that the shocks which led to inflation were global in nature
Dr Bernanke also found that Bank staff were using “out-of-date” software which had not been properly maintained and recommended that the Bank dedicate more resources to improving its forecast systems.
The review was called last year after Bank forecasts were repeatedly wide of the mark in a period of economic turbulence, leading to criticism from politicians and commentators.
On Wednesday, the economist stressed that there are still improvements for the Bank to make but said that the UK would probably not have avoided inflation even if these had already been implemented.
“It is very important to understand that the shocks which led to inflation were global in nature,” he told the committee.
“All these things were faced by all the market economies, all of whom have experienced inflation and I think avoiding inflation entirely would have been essentially impossible.
“Significant inflation was unavoidable.
“If my proposals would have been in force, the committee would have had some useful tools to think about how to respond to inflation.”
He was also asked whether “groupthink” could have contributed to most central banks failing to forecast the degree to which inflation spiked.
The concerns I have are primarily with the infrastructure and I don’t know how some of those problems arose
UK inflation soared to 11.1% in late 2022, leading to significant increases in interest rates – to a current 16-year-high of 5.25% – as central bankers tried to bring inflation back down towards target levels.
Dr Bernanke said “it is a difficult judgment to make” before an inflation event occurs and missing this “is not necessarily” to do with groupthink.
He added: “The concerns I have are primarily with the infrastructure and I don’t know how some of those problems arose.
“I do think some of that issue was that the Bank was very much engaged in putting out current fires, dealing with the current issues, the criticism from Parliament and the public.
“And they didn’t devote enough time to the maintenance, and updating on the infrastructure. Is it indefensible? I do think that is understandable given what they were faced with.”
Dr Bernanke said he had seen a “great deal of positivity” from the Bank of England about implementing his recommendations.
“Of course when they begin the process of doing some of these hard things they may find issues that they did not think about,” he said.
“But, as best as I can tell, it is my understanding they intend to take all 12 recommendations seriously.”
He said many of his recommendations were “interlocked” and so would come together as a “package” of reforms.