UK public inflation expectations fell in April: survey

[LONDON] Britons’ short-term and long-term inflation expectations fell in April, in a surprise reading from a monthly survey by YouGov for US bank Citi, which said the data did not give the Bank of England a strong basis for a more hawkish policy position.

Short-term inflation expectations fell to 5 per cent in April from 5.4 per cent in March, while long-term expectations eased to 4.2 per cent from 4.5 per cent a month earlier, according to the survey published on Monday.

The numbers are likely welcome news for the Bank of England as it monitors the fallout from the Iran war.

While the public are poor predictors of inflation, the BoE watches their expectations carefully for signs that price pressures are becoming permanently embedded in the mindset of the public, which could in turn influence interest rate decisions.

“We think there is still a compelling case to look through the volatility in these series for now until the volatility eases and the trend becomes clearer,” the Citi/YouGov report said.

‘Little basis yet‘ for more hawkish policy

It said that the big spike in March - when the inflation expectation for the year ahead marked the biggest monthly increase in more than 20 years - could have been due to a spike in fuel prices driven by the war in Iran, describing it as “anomalous”.

The April figures suggest inflation expectations are retreating as oil prices, and in particular future prices, drop to slightly lower levels, the report said.

It added that the trend would likely resume its downward path eventually, assuming an orderly return to energy markets over the coming months.

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“So long as the volatility is explicable, and the expectations appear to be both moderating and anchored, we think there is little basis yet to use this data as a convincing argument for a more hawkish policy position,” the report said. REUTERS