UK consumer inflation fears escalate further
Simon Ward
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The EU Commission's UK consumer survey for January will increase MPC worries about inflationary expectations becoming detached from the 2% target.
The net percentage of consumers expecting faster price rises over the next 12 months increased to 42, above the 2008 peak of 39 and the highest since 1994. The net percentage reporting higher prices over the last 12 months climbed to 40, though reached 60 in 2008 – see first chart.
The second chart shows CPI inflation together with the sum of the two survey responses. (In theory, the backward-looking net percentage should be related to current inflation while the forward-looking response will gauge the expected rise or fall, so the sum should be a measure of one-year-ahead inflation expectations.)
The combined measure leads inflation and is approaching the 2008 peak, which foreshadowed a CPI headline rate of 5.2%. Expectations and inflation itself, of course, fell sharply in 2009, reflecting the recession and a collapse in commodity prices; the current overshoot is likely to prove more sustained.
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