The Bank of England has ignored inflation for so long that is now clearly behind the curve, and getting more and more desperate to catch up.
But the central bank is in danger of scuppering its own purpose by ignoring another big change to the economy: Brexit.
The governor of the Bank of England, Andrew Bailey, draw the ire of trade unions and indeed pretty much everyone else when he told the BBC last week that people should show restraint in asking for wage increases.
With consumer price inflation at 5.4% in December and Bank interest rate at just 0.5% (after two consecutive increases), it is not difficult to see why Bailey hopes people will refrain from asking for more money.
But as the cliché goes, hope is not a strategy. The Bank of England cannot rely on people sacrificing their immediate wellbeing to avoid the future pain of runaway inflation.
Moreover, the Bank of England does not have the means to influence people’s ability to push for higher wages, but even if it did, this time it wouldn’t work.
It’s not just because job vacancies have risen to record levels while unemployment fell to where it was before the Covid-19 pandemic hit.
Brexit is the elephant in the room, and it could turn out it is playing a crucial role in people’s ability to negotiate salary increases.
In fact, this was the main point of Brexit: getting out of the European Union removed the right of EU citizens to work in the UK, shrinking the available labour pool.
This was always going to be inflationary, via at least two paths: first, with fewer workers available, of course employers would have to hike wages to hire people.
And secondly, in some industries the shortage of workers is creating a shortage of products and services, which in turn is pushing up the prices of goods and services.
The tonnes of unpicked strawberries and raspberries left to rot in the fields due to Eastern European workers missing and not being replaced by British pickers are one example.
Next, there have been sporadic shortages caused by mainly Eastern European lorry drivers not returning to work in the UK. There are also issues in the care sector, as well as in hospitality.
By the end of February last year, almost 5.2 million applications from EU citizens to obtain Settled Status (reserved for those who had been in Britain before it left the EU) had been received, compared with estimates of up to 4.1 million.
The fact that there were more EU citizens in the UK than previously thought could make the problem worse, in a way, because it means the reliance on these people (who could leave at any time) is greater than thought.
Net migration of EU citizens has been significantly negative over the past year, as can be seen in this chart published by Bank of America Global Research in a recent report:
After Brexit, UK workers have their chance to demand higher wages. They will undoubtedly do so, Andrew Bailey’s angst notwithstanding.