Is the BoE now too pessimistic about near-term inflation?

13th May 2011 by Simon Ward

The chart shows an update of a monthly CPI inflation profile presented in a previous post together with the Bank of England’s mean forecast based on unchanged policy, estimated from chart 5.13 of the May Inflation Report. Assumptions underlying the profile include:

On these assumptions, inflation is projected to peak at 4.6% later this year before falling back below 3% in early 2012. The average between April 2011 and June 2012 is 0.6 percentage point lower than in the Bank’s forecast, showing a quarterly peak of more than 5%. The profile, however, is higher from late 2012, with inflation stabilising at about 2.75% versus the Bank’s 2.5%.

Reasons for these differences include:

While inflation is likely to remain well above the target for the foreseeable future, a significant fall next year should contribute – with rising wage growth and employment – to a rebound in household real income, in turn supporting prospects for consumer spending and GDP growth.

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1 thought on “Is the BoE now too pessimistic about near-term inflation?”

  1. Drf says:

    “Is the BoE now too pessimistic about near-term inflation?”  Hi Simon; perhaps a better form of expressing the BoE’s incompetence in assessing future inflation would be:
    “Is the BoE now too unrealistic about near-term inflation?”

    The answer to the latter question must be undoubtedly “YES”!!

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