Worries over inflation soar
INFLATION expectations soared between April and June, a signal that may concern even the most dovish heavyweights on the Bank of England’s rate-setting committee.
Median inflation expectations for the year ahead reached 3.9 per cent this month, a full one percentage point jump from April, according to a poll conducted by YouGov for Citigroup.
Expectations for inflation over a five to 10 year period hit a record high of 4.1 per cent this month, up from 3.5 per cent in May.
The 0.6 per cent spike is the sharpest since the survey began in 2005, Citigroup said in a note.
“Moreover, for the first time, the most popular answer – in other words the mode of the distribution — is that inflation will exceed six per cent annualised on average over the longer term,” the note warned.
“The speed of the rise indicates a risk that inflation expectations are becoming de-stabilised,” said Citigroup’s Michael Saunders.
“The MPC’s strategy of ultra-low policy rates is helping to rebalance the economy, but this may come at the price of a marked loss in its anti-inflation credibility,” he added.
CPI inflation is currently 4.5 per cent, with interest rates at 0.5 per cent.