–BOE: Feb Median Year Ahead Inflation Expectations 4.0% Vs 3.9% Nov
–BOE/GFK: Public See Current Inflation at 4.4% Vs 3.9% in Nov
–BOE/GFK: Feb Longer Term Inflation Expectations 3.5% vs 3.3% in Nov

LONDON (MNI) – The public’s inflation expectations have moved up in
line with the rise in headline inflation, the latest Bank of England/GfK
NOP survey found.

The February survey found year ahead inflation expectations rose to
4.0% from 3.9% in the November survey. The survey was conducted between
February 10 and 22 this year, with this period covering the Feb 15
release of January’s CPI data, which showed headline inflation at 4.0%.

The year ahead inflation expectations outturn was the highest since
August 2008, when it stood at 4.4%.

BOE Monetary Policy Committee members have repeatedly cited the
risk of inflation expectations moving up in line with high headline
outturns, although the debate is raging over the likelihood of this
translating into higher pay settlements.

These latest GfK/NOP survey figures showed not just year ahead but
also longer term inflation expectations moving higher.

The median response for longer term, say five years ahead,
inflation rose to 3.5% from 3.3% in November. The public’s median two
year ahead inflation forecast was 3.4% compared with 3.2% in November.

Both the two year and longer term inflation expectations were the
highest in the data series, although the significance of that is limited
as these questions have only been asked since February 2009.

The survey also found the public, on balance, expecting to be hit
by higher interest rates. In all, 62% of respondents expected rates to
rise over the next 12 months, up from 52% in November.

MPC member Martin Weale, one of the three MPC members at the
February meeting to vote for a rise in Bank Rate, has justified his vote
in part because of the risks associated with rising inflation
expectations. At a recent Treasury Select Committee hearing he
struggled, however, to find evidence that in the current climate higher
inflation expectations would lead to any significant increase in pay.

BOE Deputy Governor Charles Bean said at a recent Q an A session at
the Association of British Insurers he paid particular attention to
survey evidence on employers’, rather than employees’, inflation
expectations.

–London newsroom: 4420 7862 7491; email: drobinson@marketnews.com

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