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Inflation expectations 'rising' as prices increase

30/05/2008

Inflation expectations for the next 12 months are rising towards four per cent as consumers feel the pressure of higher fuel, food and energy prices; a new survey has found.

The latest consumer barometer from Lloyds TSB Corporate Markets published today shows a record number of consumers are feeling the pinch at present.

Of the 2,000 people surveyed by Lloyds, 90 per cent claimed prices had risen over the last year, compared to 63 per cent in 2007.

And 89 per cent believe prices will be higher still in a year's time, the highest figures since the survey began in 2004.

Asked to predict the rate of inflation in 12 months time, consumers estimated that it would be 3.8 per cent, up from the prediction of 3.6 per cent in April.

The number of consumers believing their employment prospects are worse now than a year ago, and the number feeling less secure in the jobs, also both increased.

Trevor Williams, chief economist at Lloyds TSB Corporate Markets, said: "Currently at three per cent, there's no denying that the immediate outlook for inflation remains high. But the Bank of England's latest report projected that inflationary pressures would ease in the long term as food and fuel prices start to fall next year.

"In stark contrast to this, our latest barometer shows that consumers do not believe prices will ease and so inflation expectations for the next 12 months are tipping four per cent.

"The [Bank of England's] monetary policy committee continues to highlight the need to anchor inflation expectations as key to bringing actual inflation under control. Against this background, any cut in interest rates in the near future would send the wrong signal; that the Bank is more focused on stabilising output growth rather than meeting its inflation target of two per cent," he added.

"With this in mind, if inflation expectations continue to rise over coming months we are facing a period of flat or rising interest rates to bring them back under control."