The two key messages of the November Inflation Report are that CPI inflation will be significantly higher next year than the MPC predicted in August but the Committee nevertheless remains firmly biased in the direction of more ease. The latter can be inferred from the sub-2% mean expectation for inflation in late 2014 and 2015 based on unchanged policy. The Report, indeed, raises suspicions that the MPC would have expanded gilt purchases at last week’s meeting but for the Chancellor’s QE income manoeuvre.

At the August press conference, Sir Mervyn King opined: “A year ago inflation was rising and heading towards 5%. It has now fallen to within touching distance of the 2% target. The big picture in today’s Report is of a further decline in inflation, as external influences fade and domestic cost pressures ease …”

A post at the time argued that this represented wishful thinking and so it has proved. Ogling the fan charts, the MPC’s mean expectation for inflation in 2013 now appears to be 2.5-2.6% versus 2.1% in August. A fall below 2%, meanwhile, has been pushed back by a full three quarters, from the fourth quarter of next year to the third quarter of 2014. December inflation, in other words, is expected to be above the target in 2013 for an eighth successive year.

Most but not all of the 2013 forecast rise is explained by higher-than-expected domestic energy prices and undergraduate student tuition fees. Energy prices are now projected to climb by 8% around the turn of the year versus 2.5% in the August Report, adding about 0.25 percentage points (pp) to 2013 inflation. The tuition fee boost, meanwhile, turned out to be 0.3 pp rather than the assumed 0.2 pp. This suggests that the MPC’s forecast for “core” inflation in 2013 has been raised by 0.15-0.25 pp.

The view here remains that average 2013 inflation will exceed 3%, reflecting stronger core pressures than assumed by the MPC and a likely further increase in global commodity prices stemming partly from central bank liquidity largesse. Sir Mervyn is attempting again to deploy the argument that a continued inflation overshoot reflects “idiosyncratic” factors but this will be difficult to sustain if, as expected, further upward revisions – and more letter-writing – prove necessary.