Source: Sharecast
Mann said the rapid increase in the price level "has scarred consumers", even as inflation has moderated and real income growth resumed.
"In sum, high inflation itself is behind scarring, income uncertainty, and weak consumption growth," she said.
"Therefore, monetary policy needs to continue to focus on reducing inflation to achieve the environment of price stability. Then, households can return to their normal consumption-savings behaviour which is conducive to stronger consumer demand."
As far as monetary policy and consumption are concerned, Mann argued that restrictive monetary policy to date has reduced consumption, especially for mortgage holders who did not change their terms on refinancing, and for savers taking advantage of higher rates on deposits.
"It is perhaps counterintuitive that in order to create an environment conducive to growth, monetary policy must remain restrictive for longer," Mann said. However, this is necessary to bring inflation sustainably back to the Bank’s 2% target in the medium term.
Quoting her former boss Alan Greenspan at the US Federal Reserve, Mann said: "We will be at price stability when households and businesses need not factor expectations of changes in the average level of prices into their decisions."
The evidence from consumer behaviour is that we are not there yet, she added.
In its last policy announcement on 18 September, the BoE left interest rates on hold at 4%, as widely expected, citing persistent inflation.
The Monetary Policy Committee voted by a majority of seven-to-two to leave interest rates unchanged.
Swati Dhingra and Alan Taylor, both known for their more dovish positions, voted to cut by 25 basis points.
The MPC has reduced rates three times this year, including a 25bps trim in August.
