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How has the risk to inflation from inflation expectations evolved?

  • Harimohan, Rashmi

    ()

    (Bank of England)

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    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.

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    File URL: http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/qb120201.pdf
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    Article provided by Bank of England in its journal Bank of England Quarterly Bulletin.

    Volume (Year): 52 (2012)
    Issue (Month): 2 ()
    Pages: 114-123

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    Handle: RePEc:boe:qbullt:0074
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    1. Barnett, Alina & Groen, Jan J J & Mumtaz, Haroon, 2010. "Time-varying inflation expectations and economic fluctuations in the United Kingdom: a structural VAR analysis," Bank of England working papers 392, Bank of England.
    2. Michael F. Bryan & Brent Meyer, 2010. "Are some prices in the CPI more forward looking than others? We think so," Economic Commentary, Federal Reserve Bank of Cleveland, issue May.
    3. Felix Ritchie, 2008. "Secure access to confidential microdata: four years of the Virtual Microdata Laboratory," Economic and Labour Market Review, Palgrave Macmillan, vol. 2(5), pages 29-34, May.
    4. 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.
    5. Hughes, Abigail & Saleheen, Jumana, 2012. "UK labour productivity since the onset of the crisis — an international and historical perspective," Bank of England Quarterly Bulletin, Bank of England, vol. 52(2), pages 138-146.
    6. Bunn, Philip & Ellis, Colin, 2010. "How do individual UK producer prices behave?," Bank of England working papers 394, Bank of England.
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