UK Public Inflation Expectations Decline in April, Citi/YouGov Survey Shows
April Survey Results and Implications for Bank of England Policy
By Muvija M and David Milliken
Survey Overview and Key Findings
LONDON, April 27 (Reuters) - Britons' short-term and long-term inflation expectations fell in April, in a surprise reading from a monthly survey by YouGov for U.S. bank Citi, which said the data did not give the Bank of England a strong basis for a more hawkish policy position.
Short-term and Long-term Inflation Expectations
Short-term inflation expectations fell to 5% in April from 5.4% in March, while long-term expectations eased to 4.2% from 4.5% a month earlier, according to the survey published on Monday.
Implications for the Bank of England
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.
Analysis of Volatility and Policy Outlook
"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.
Factors Behind Recent Volatility
Impact of Iran War and Fuel Prices
'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".
April Figures and Future Outlook
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.
Policy Implications
"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.
(Reporting by Muvija M and David Milliken; Additional reporting by Andy Bruce; Editing by Daniel Wallis)
