prices. these are more relevant than the spot price for retail pricing. bank of england persistent, however. and reducing it requires the economy to grow below its trend rate for a period of time. because they ’ ve depressed real incomes, that slowing in demand will to some degree follow from the very same rises in import costs that have pushed up headline inflation. equally, if government support mitigates that effect, there is more at the margin for monetary policy to do. the mpc is likely to respond relatively promptly to news about fiscal policy. whether official interest rates have to rise by quite as much as currently priced in financial markets remains to be seen. i ’ ve received helpful comments from colleagues at the bank of england. i ’ d like to thank fabrizio cadamagnani, kieran dent, joseph oyegoke and doug rendle for their help in preparing the speech. the views expressed are my own and do not necessarily reflect those of the bank of england or other members of the monetary policy committee or the financial policy committee.

“ because of inflation ”. this is not quite right. implicitly, it presumes that monetary policy could have prevented prices from rising so fast without doing anything to nominal incomes. unfortunately, that ’ s not the case. even assuming policy had been tightened sufficiently aggressively, and sufficiently early, to have knocked eight percentage points off the current rate of inflation, it would also have depressed nominal income growth by at least as much and almost certainly quite a bit more. unemployment would be materially higher and nominal wage growth materially lower. ultimately, this reflects what is known as the “ neutrality ” of monetary policy : in the long run it has no impact on real economic variables ( things like real output or relative prices ). it can ’ t boost structural productivity, for example. nor can it offset the consequences for real incomes of ( say ) disruptions to supply chains in asia or russia ’ s curtailment of the supply of gas to europe. indeed, in the first instance, at least for a period of time, tighter monetary policy lowers gdp and real incomes. i will say more about this shortly. for the time being, a better short - hand description is this : the pandemic and the war have led jointly to higher inflation and lower real incomes ; the mpc will ensure the inflationary effects do not persist into the medium term ; but the real - income hit exists either way, and will be reversed only to the extent the underlying shocks themselves go away. the second point i want to make is that we are inevitably having to learn, to some degree, about the scale of these “ second - round ” effects. the mpc has raised interest rates faster than at any time in its history but obviously more gradually than inflation itself. in the main, this is because the direct effects of the jumps in traded goods and energy prices, as violent bank of england as they are, are likely to fade before policy could really do much about them. the exact timing and scale of the peak rate of retail energy price inflation will obviously depend ( amongst others ) on the nature and duration of government support. but in the absence of further ( and equally steep ) rises in wholesale gas prices, and even without any such support, inflation in retail energy bills is likely to be materially lower a couple of years from now than it is today. inflation in the areas most affected by the pandemic seems already to have peaked. however, it ’ s also because we are relatively unfamiliar with