Prediction of 3.1% in Citi\/YouGov poll comes days before Bank of England meeting on interest rates<\/p>\n
Last modified on Tue 3 Aug 2021 09.33 EDT<\/p>\n
The British public expects inflation to jump over the coming year before it stabilises, according to a survey just days before the Bank of England makes its own assessment of inflation and whether it should impose higher borrowing charges to calm rising consumer prices.<\/p>\n
The latest Citi\/YouGov survey showed public inflation expectations for the next 12 months rose to 3.1% in July from 2.8% in June, taking this measure further above its long-run average, though below a peak of 3.8% reported last December.<\/p>\n<\/p>\n
Official figures showed that inflation increased in June to 2.5% and most City economists have forecast that it will head above 3% in the autumn.<\/p>\n
The Bank of England\u2019s monetary policy committee meets on Thursday and is likely to revise its prediction that inflation will hit a peak of about 3% this year, shifting the peak to about 3.5%.<\/p>\n
Threadneedle Street has said the increase in prices is largely because of temporary factors, such as shortages in supplies due to the Covid-19 pandemic, meaning that inflation will return to its 2% target during the next two years.<\/p>\n
However, central bank officials are known to be concerned that the public will begin to think that 3%-plus inflation is the norm and ask for pay rises in excess of 3% to protect their living standards.<\/p>\n
Strengthening wage increases could feed into higher prices, forcing the central bank to raise borrowing costs to hit its 2% target.<\/p>\n
The survey said that the public\u2019s longer-term inflation expectations for the next five to 10 years held steady at 3.4%.<\/p>\n
Higher producer prices are another factor putting pressure on inflation. Factory gate prices across the eurozone rose by 1.4% month on month in June, up from 1.3% in May, and have risen by 10.2% over the last year, according to new data from the European statistics agency Eurostat. The increase was driven by a surge in energy prices, with the costs of intermediate goods used in final products, heavy duty machinery and consumer goods also continuing to rise. <\/p>\n
Citi said the rise in short-term price expectations in the UK survey probably reflected fears of higher household energy bills later this year as well as the recent faster-than-expected rise in inflation because of higher oil prices and supply-chain bottlenecks related to Brexit and the pandemic.<\/p>\n
It added that the BoE could draw some comfort from a steadying in the public\u2019s longer-run inflation expectations, though it would need to be watchful that the temporary increase in headline inflation later in 2021 did not push long-term price expectations higher.<\/p>\n
\u201cA marked increase here could yet force the Bank to tighten policy even if the recovery is incomplete,\u201d Citi said.<\/p>\n
The survey also showed that an above-average percentage of people surveyed said they did not know how inflation would change in future, creating a greater chance that an accelerating trend for higher prices in the next few months could trigger an even a stronger shift in long-term expectations, Citi added.<\/p>\n
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