This is a really plausible, if counter-intuitive, suggestion by Richard Murphy that the extent of financialisation in the British economy (e.g 92% of cars bought on finance, 19% of households in the private rented sector) means that rapid raising of interest rates can actually cause inflation, as the burden is passed on through debtor/creditor relationships. His point is that the transmission mechanisms of monetary policy have changed in a way that economic formalism struggles to acknowledge. If I understand correctly he’s not suggesting that the underlying causes of inflation in Britain are much different from global factors which created it elsewhere (i.e. war in Ukraine, Covid supply chains, post-Covid spending boom) but that its unusual persistence is explained by the aforementioned dynamic.
He points to the Bank of England’s own admission about the failure of their models. He cites the startling example of their modelling assuming everyone has variable rate mortgages thus transmission would be immediate. What other assumptions like this are in there?
Mark Carrigan 