The Bank of England governor Andrew Bailey has called for businesses to hold back price rises and tell them that interest rates will need to rise again if inflation falls.
Bailey, who was speaking after the central bank raised its base rate to a 14-year high of 4.25% from 4%, said inflation was too high and the central bank would need to take further action if it began to fall by the summer.
The annual inflation rate was up to 10.4% in February, from 10.1% in January, according to the latest official data. The Bank of England has an official inflation target of 2%.
He said that we had to get inflation down. Inflation is too high at the moment. We think it will fall sharply from the early summer throughout the rest of the year. We are pretty confident about that.
He said that there were probably some temporary factors in there that haven't come down yet, and we had some news earlier this week which was a bit higher than we expected it to be.
Bailey said on BBC Radio 4's Today programme: "I would tell people who are setting prices that if we get inflation embedded interest rates will have to go up further."
When companies set prices, I understand that they have to reflect the costs they face. I would say please bear that in mind when we are setting prices in the economy and people are looking forwards we do expect inflation to come down sharply this year. Bailey warned workers to restrain wage demands or risk higher interest rates to prevent inflation becoming embedded. His comments caused a storm of protest from trade unions who claimed that wage rises were well below inflation and most workers were suffering a decline in their standard of living.
The most recent labour market figures show wages growth in the private sector stalled last November and has remained flat since then.
Asked if companies were profiteering and pushing prices higher than needed to, Bailey said he had no evidence to support this concern, but he wished business owners to consider price restraint.
The research of company accounts by the UK's largest private sector union, Unite earlier this month found that large corporations have fuelled inflation with price increases that go beyond the rising costs of raw materials and wages.
A trend called greedflation analysis of top 350 companies on the London Stock Exchange shows that the average profit margins a company's revenue above the cost of sales went from 5.7% in the first half of 2019 to 10.7% in the first half of 2022.
Economists are concerned that multinational corporations have passed on higher prices to increase profits and improve profit margins, pushing inflation to a level that is not warranted by increases in raw materials or wage rises.
Nestl and Procter Gamble are the major global businesses to increase profits and protect profit margins over the last year.
The European Central Bank discussed the potential impact of profiteering by companies as a source of inflation, but it has yet to reveal its conclusions.