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How has the risk to inflation from inflation expectations evolved?

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  • Rashmi Harimohan

    (Bank of England)

Abstract

During 2011, the Monetary Policy Committee expressed concern that persistently above-target outturns of CPI inflation might lead to inflation expectations becoming less well anchored by monetary policy. And in turn, that could make inflation itself more persistent via changes in price-setting or wage-setting behaviour. But inflation is now more than 2 percentage points lower than in September 2011. In light of that, this article discusses recent movements in inflation expectations and looks at a range of indicators to assess how the risk to inflation from expectations has evolved. While the upside risk has receded a little relative to the 2010–11 H1 period, so long as inflation is above target, some risk remains.

Suggested Citation

  • Rashmi Harimohan, 2012. "How has the risk to inflation from inflation expectations evolved?," Bank of England Quarterly Bulletin, Bank of England, vol. 52(2), pages 114-123.
    • Handle: RePEc:boe:qbullt:0074
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    References listed on IDEAS

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    1. Refet S. Gürkaynak & Andrew T. Levin & Eric T. Swanson, 2006. "Does inflation targeting anchor long-run inflation expectations? evidence from long-term bond yields in the U.S., U.K., and Sweden," Working Paper Series 2006-09, Federal Reserve Bank of San Francisco.
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    Cited by:

    1. Gareth Anderson & Becky Maule, 2014. "Assessing the risk to inflation from inflation expectations," Bank of England Quarterly Bulletin, Bank of England, vol. 54(2), pages 148-162.
    2. Becky Maule & Alice Pugh, 2012. "Do inflation expectations currently pose a risk to the economy?," Bank of England Quarterly Bulletin, Bank of England, vol. 53(1), pages 110-121.
    3. Tom Smith, 2012. "Option-implied probability distributions for future inflation," Bank of England Quarterly Bulletin, Bank of England, vol. 52(3), pages 224-234.

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