UK: Are inflation expectations well anchored? - Nomura

Analysts at Nomura explain that UK inflation expectations generally speaking look close to either the 2% inflation target or their long-run averages, suggesting there has been no dis-anchoring of expectations.

Key Quotes

“There are a number of measures of expectations which we can split into short- and longrun indicators. The YouGov/Citigroup indicator of year-ahead expectations is running at 2.5%, just 0.1pp above its long-run average. The BoE’s inflation expectations series for year-ahead expectations is also just 0.1pp higher than average, while for the year after that it is in line with the series average. 5-10 year ahead RPI swaps have diverged from their US and euro area equivalents on the upside, but again remain close to their averages over the past decade. As for other long-run measures of inflation Consensus Forecasts sees economist expectations of inflation 5-10Y ahead at 2.1%, i.e. within 0.1pp of the target (it has been significantly higher in the past), while both the YouGov/Citigroup (5-10Y) and the BoE’s (5Y) long-run expectations series are both very close to their averages.”

“Our measure of the ‘transactions weighted’ CPI, which weights the components of the CPI by their standard expenditure weights and also by a weight indicating the number of times they are purchased in a given period, has fallen. This may be an indicator of inflation expectations to the extent that households are more aware of the prices of goods and services they purchase more often.”