U.K. inflation expectations seem rising in November

U.K. inflation expectations are expected to increase. One-year-ahead inflation expectations tend to move with the path of observed inflation so it is unsurprising that they increased in the last quarterly survey. The odd feature of that survey was the drop in five year-ahead expectations but probably the oddity was that it had increased so sharply in the earlier survey, noted Societe Generale in a research report.

The perception of inflation tends to be driven not just by the direction of underlying inflation but also by the price behaviour of the most frequently purchased items. Of particular note in that regard, whilst fuel price inflation has increased notably and continuously, food price deflation has been persistently stable in spite of the huge rise in imported food prices because of the depreciation of the pound. This is expected to cap the size of the likely rise in inflation expectations that is expected to be seen at all horizons in this month’s survey, added Societe Generale.