Inflation of expectations

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Inflation is higher, and the MPC has once again pushed out its forecasts for when inflation should return to target. The Governor of the Bank of England has had to write a sixth consecutive letter to the Chancellor. Here's a brief look back over the Bank's inflation expectations in the last year.

May 2010
The May projections also suggest that, absent further price level surprises, it is likely that inflation will fall back to target within a year.
August 2010
Following the announcement in the Budget of a further increase in VAT, inflation is now expected to remain above the 2% target until the end of 2011 – about a year longer than projected in May.
November 2010
CPI inflation is expected to remain above target, and at a somewhat higher level than expected three months ago, for a period of a year or so. Indeed, over the next few months the inflation rate might rise further.
February 2011
Inflation is likely to continue to pick up to somewhere between 4% and 5% over the next few months, appreciably higher than when I last wrote to you.
May 2011
Continuing volatility in energy and commodity prices makes it difficult to be sure when inflation will return to the target. As explained in the May Inflation Report, inflation is likely to rise further over the next few months… [the MPC expect] inflation to fall back through 2012 and into 2013, by which time the chances of inflation being above or below the target were broadly balanced.

One expectation hasn't changed: there will be another letter in three months time.


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