Sends a chill up the spine of any red blooded mainstream central banker!

Inflation expectations rise

Thu Dec 13, 2007 9:37am GMT – Britons’ expectations of future inflation rose to hit a series high of 3.0 percent in November, well above the actual rate of inflation, a survey by the Bank of England showed on Thursday.

The central bank’s quarterly survey showed median expectations for the rate of inflation over the coming year picked up from 2.7 percent in August to its highest level since the survey began in 1999.

The survey also showed people’s perception of the current rate of inflation rose to a series high of 3.2 percent, from 2.8 percent in August. The latest official figures showed inflation at 2.1 percent in October, just above the central bank’s 2.0 percent target.

The figures may hamper the Bank of England’s ability to cut interest rates much further, after lowering borrowing costs by 25 basis points to 5.5 percent last week.

Money markets are pricing in three more quarter point cuts before the end of 2008.

Policymakers, who had access to the survey before last week’s rate cut, have expressed concern that inflation expectations have not fallen even though headline inflation has come back to near target.

Inflation hit a series high of 3.1 percent in March.

Expectations of inflation can become self-fulfilling as people are encouraged to demand higher wages, potentially fueling a wage-price spiral.

(c) Reuters2007All rights reserved


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