Home Business NewsBusinessBanking NewsBoE/Ipsos inflation attitudes: Entrenched long-term inflation expectations threaten wage spiral

BoE/Ipsos inflation attitudes: Entrenched long-term inflation expectations threaten wage spiral

by LLB Finance Reporter
10th Jun 22 10:45 am

In the results of the quarterly Bank of England/Ipsos Inflation Attitudes Survey released today, median expectations of the rate of inflation over the coming year were 4.6%, up from 4.3% in February 2022.

Asked about expectations of inflation in the longer term โ€“ up to five yearsโ€™ time – respondents gave a median answer of 3.5%, up from 3.3% in February 2022.

Adrian Lowery, financial analyst at investing platform Bestinvest said, the Inflation Attitudes survey is watched by policymakers and these are elevated readings:

โ€œThis survey monitors public inflation expectations over various time periods and as such is an indicator of how entrenched inflation might become. This is because elevated inflation expectations among workers can fuel higher wage demands and therefore potentially aggravate the inflationary spiral โ€“ especially in a tight labour market.

โ€œThe latest survey shows expectations for inflation, as one would expect, have grown since the last survey in February. Perhaps the figure that will give the Bank of England most concern is the expectation that inflation will still be at 3.5% in several yearsโ€™ time. That means people donโ€™t believe the Bank of England will succeed in its forecast of bringing inflation back down to its 2% target in a couple of yearsโ€™ time.

โ€œThat does risk higher salary demands because people will tolerate a short spell of high inflation and a temporary hit to their spending power. But if they expect it โ€“ rightly or wrongly – to last years then they will take action, in part by taking steps to boost their income.

โ€œThe survey also revealed a failing faith in the Bankโ€™s effectiveness in setting rates to control inflation. The net satisfaction balance โ€“ the proportion satisfied with the way the Bank is doing this job minus the proportion dissatisfied โ€“ was -3%, down from +6% in February 2022.

โ€œBoE officials on the monetary policy committee meet next week to make their own assessment of the economic outlook and are expected to increase the Bankโ€™s base rate from 1% to 1.25% on Thursday.โ€

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