Expectations of long-term inflation remain reasonably well anchored to UK’s 2 per cent target, the Bank of England says, despite missing the target every calendar year since 2005.
However, the same current data suggests, that medium and short term inflation expectations are more mixed even if there are few signs they have become “significantly de-anchored”.
The Bank says it continues to debate whether “sustained above-target inflation might cause expectations of inflation to drift upwards and become ingrained in price and wage-setting behaviour”.
The annual consumer prices index inflation that the Bank targets hit 4.5 per cent for April, up from 4 per cent for March.
The Bank’s report recognises that the annual change in the CPI has often been one percentage point higher than the 2 per cent target set by the government.
The Bank has dismissed this as “temporary effects” and predicts inflation will remain elevated throughout the remainder of 2011 before falling back in 2012.