Expectations of future inflation – a key factor in the Bank of England's decision about when to raise interest rates – have risen, according to the latest regular poll conducted for the Bank by NOP. Yet the public is far from seeing rising inflation as evidence of a booming economy; a separate survey shows consumer confidence slumped again at the start of the year.
The public's guess as to where inflation will be in a year ticked up by 0.1 of a percentage point to 4 per cent, and they believe it will still be at 3.4 per cent by the spring of 2013 – much higher than Bank forecasts of the most likely path for price rises. The current assessment of inflation was judged to be 4.4 per cent, up from 3.9 per cent in November, against the real rates of 4 per cent and 3.3 per cent respectively.
That may well reflect the way that the price of essential everyday items such as food and fuel have risen faster than other goods. Media coverage of recent trends in global commodity prices may also have influenced views.
While the Bank monitors expectations closely – because they provide clues about whether workers will secure higher wages and firms will pass on rises in costs, both features that might lead to an inflationary spiral – rising expectations will not necessarily trigger a rise in interest rates.
The Governor of the Bank, Mervyn King, said in January that "there is some evidence to suggest that inflation expectations have moved higher. But by itself, such evidence is not sufficient to suggest that inflation will persist above the target."
He added: "Other measures of inflation expectations from financial markets do not suggest a similar pick-up. And the experience in 2008 and early 2009 shows that the household measures of inflation expectations respond to movements in CPI inflation itself.
"Moreover, inflation expectations will not generate persistently higher inflation of their own accord unless they are supported by the underlying determinants of inflation – broad money and nominal spending growth."
In the Bank survey, only 9 per cent of respondents said they would push for increased pay in their current jobs. And wage settlements remain at a relatively subdued level of 2.3 per cent.
The Bank will also be heartened, in this context, by the Nationwide Consumer Confidence index today, which suggests that households are not in a mood to ramp up spending and chase shop prices higher.Reuse content