Investors expect inflation to increase sharply in the UK, Europe and the US over the next year as major economies slowly accelerate from the period of stagnation since the financial crisis.
Expectations of core inflation in the UK have risen by more than half a percentage point across the developed economies, according to a survey by JP Morgan.
Core inflation in the UK and US is expected to average 2.1 per cent over the next year, with a 1.3 per cent average in the Eurozone. Core inflation strips out the effects of volatile components of price indices such as food and oil.
Over a five-year period the predicted rate of core inflation is even higher, at 2.8 per cent for the UK, as the devaluation of sterling continues to feed through to increased prices.
The 17 per cent fall in the value of the pound since the EU referendum has made input prices soar for companies, with consumer prices rising quickly.
However, the Eurozone is forecast to lag behind, with core inflation of around 1.9 per cent over the next five years.
Headline inflation rates across the developed world have risen quickly in recent months, driven in party by the recovery in global oil prices.
Consumer prices in Europe and the UK have both broken their central banks’ two per cent targets, while the Federal Reserve’s preferred measure of inflation reached 1.9 per cent in January.
The Federal Reserve is well on the way to raising interest rates back towards pre-crisis levels, but the European Central Bank (ECB) and the Bank of England have both made it clear they will look through transient price rises to core inflation.
Rising core inflation will put pressure on policymakers resisting calls to hike interest rates.