Bank of England boss Andrew Bailey has warned businesses that raising prices risks embedding inflation in the UK and hurting the “least well off”.
“If all prices try to beat inflation we will get higher inflation,” Mr Bailey told Radio 4’s Today Programme.
He warned interest rates would rise again if prices continued to increase.
Mr Bailey was speaking a day after the Bank raised interest rates to their highest level for 14 years after prices unexpectedly soared last month.
The Bank has been steadily increasing interest rates as it seeks to make borrowing money more expensive and encourage people to spend less, with the aim of stopping prices rising so quickly.
Mr Bailey said firms should bear in mind that inflation is likely to drop sharply this year.
He said he had not yet seen evidence of companies putting up prices more than necessary, and said that he understood they needed to “reflect the costs they face”.
But he warned firms that if high inflation became “embedded” in the UK economy, then the Bank would need to act,
“Higher inflation really benefits nobody,” he said. “It hurts people, and it particularly hurts the least well-off in society.”
Reacting to Mr Bailey’s warning, Martin Williams, chief executive of Rare Restaurants, which includes the chains Gaucho and M, said that businesses had already been restrained in raising prices.
“If restaurants had reflected the increased ‘costs they face’ in the past year as Mr Bailey suggests, a simple side salad would be priced at £20,” Mr Williams said.
He said restaurateurs were “sensitively trying to keep dining out affordable, and not lose money in doing so,” despite surging wage, food and energy bill costs.
Mr Bailey’s comments came after Tesco chairman John Allan, said in January food firms may be using inflation as an excuse to hike prices further than necessary.
Last year, Mr Bailey called on workers to not ask for big pay rises, sparking a backlash from unions.
The rate at which prices are rising remains close to its highest level for 40 years – more than five times the Bank’s target.
Higher food prices are one of the main drivers fuelling overall inflation, with the cost of everyday basics such as eggs, cheese and milk rising sharply.
How can I save money on my food shop?
- Look at your cupboards so you know what you have already
- Head to the reduced section first to see if it has anything you need
- Buy things close to their sell-by-date which will be cheaper and use your freezer
