Why Andrew Bailey’s remark on prices has raised eyebrows

As an attempt at moral suasion it doesn’t even make sense, says Sean O’Grady

The governor of the Bank of England probably does not subscribe to the view that businesses are profiteering (PA Wire)

The governor of the Bank of England, Andrew Bailey, has urged companies to try to help beat inflation by not raising their prices. “When companies set prices I understand that they have to reflect the costs that they face,” he said. “But what I would say, please, is that when we are setting prices in the economy and people are looking forwards, we do expect inflation to come down sharply this year, and I would just say please bear that in mind.” Such a forthright intervention came as a bit of a surprise.

Does it count as a gaffe?

Not as such. The term central bankers prefer is “moral suasion” – an attempt, by appeal to reason, logic and the national interest, to encourage economic actors to “do the right thing”. Of course, the “game theory” flaw is that keeping your own prices low, while competitors are able to raise theirs, means losing out. Governments and their central banks sometimes use moral suasion as a first resort in dealing with economic problems. It could work in societies where there is a famously strong sense of social cohesion, as in Japan or Sweden. In more individualistic, ie selfish, countries such as the UK, such calls of duty get ignored, if not derided.