THE BANK of England (BoE) may expect consumer price index (CPI) inflation to come down next year, but consumers themselves do not agree – and are increasingly dissatisfied with the Bank’s ability to control prices.
Inflation of 4.2 per cent over the next year is expected according to an average of the survey’s responses, taken in August. That is up on the 3.9 per cent expectations in May.
Longer-term expectations increased too, with respondents anticipating inflation of 3.5 per cent in the following 12 months, up from the 3.2 per cent predicted three months earlier. Expectations of inflation even further ahead – considered to be five years in the future – are up to 3.5 per cent from 3.3 per cent in May.
Net satisfaction with the Bank’s performance fell from 22 per cent to just 16 per cent – levels last seen in 2009.
Respondents believe inflation is currently running at 4.8 per cent, compared with the latest CPI figure of an annual 4.6 per cent, while the retail price index (RPI) – often seen as a more accurate measure of living costs because it includes housing – rose at 5.2 per cent over the year.
This suggests respondents think the RPI measure reflects their spending habits more closely than the CPI.
BoE forecasts anticipate CPI inflation falling to closer to its two per cent target in 2012 and 2013, with an “even” chance of falling below target.
However, high inflation expectations can push inflation itself higher through, for example, increasing wage demands. That may make further QE from the MPC less likely, say analysts.
“The hawkish members of the MPC are likely to be very uncomfortable about launching QE2 right now,” said Nomura’s Philip Rush. “The MPC risks doing serious damage to its credibility, causing an even longer and larger overshoot of its inflation target.”