Now, of course, it all depends on how badly you need that car, and in reality some price levels may stay elevated and some may not. Monetary policy should not respond to supply shocks which do not become generalised through their impact on inflation expectations. In more modern times, and certainly in the life of the MPC, supply shocks have tended to be temporary in terms of their impact on inflation. But if that is not likely to be the case in our assessment, we will step in and adjust policy as needed. Nothing has changed in our approach. To illustrate this approach, let me briefly summarise the announcement we made at the end of our meeting last week, drawing out the differences of view, which are very reasonable differences. The MPC emphasised that the inflation target applies at all times, with a clear focus on medium-term prospects for inflation rather than transient factors. The judgements required by this medium-term focus are particularly important and challenging at a time like this of very large shocks to the economy. For most members of the MPC, the outlook for the labour market – as I described earlier – is highly uncertain and to some degree likely to be resolved in fairly short order, and this justified a wait and see approach on policy in view of the continuing belief that higher inflation will be temporary.
Our view is that the price pressures will be transient – demand will shift back from goods to services, global supply  The hard yards ‐ speech by Andrew Bailey | Bank of England  Page 3  chains are likely to repair themselves, and many commodity prices have demonstrated mean reverting tendencies over time. But, the pressures are very much still with us, and there is still we believe pass-through to retail prices to come, and manufacturers’ output prices are still rising rapidly. Added to that is the uncertainty around how the labour market puzzle resolves itself, and how that will affect employment and earnings. Meanwhile, just to remind, the recovery is weakening. A lot therefore turns on how effectively supply capacity is rebuilt and over what time, and how the labour market evolves. These are truly hard yards. For most of the rest of my time, I am going to turn to the setting of monetary policy. Monetary and fiscal policy have operated independently but consistently – unsurprisingly I would emphasise – to provide the bridge through Covid, supported I should add by the stability of the financial system and macroprudential policy. We have had to rely on asset purchases to do a lot of the work because of the proximity of interest rates to the lower bound. There is plenty of debate around QE, some parts of that debate are better founded than others.