The results of the Citi/YouGov survey, which was conducted on January 22-23 among 2,028 British adults, showed that concerns about disruptions in shipping in the Red Sea caused an increase in annual and long-term inflation expectations.
According to the report, public expectations for inflation in the next 5-10 years increased by 0.2% compared to December, to 3.6% (the highest value since April 2023). Meanwhile, annual inflation expectations jumped by 0.4% to 3.9%, reaching a 2-month high.
Official data released last month showed that in December consumer prices rose by 4.0% per year after increasing by 3.9% per year in November. It is the first increase in inflation rate in ten months. Economists had expected inflation to slow to 3.8% per annum. Meanwhile, core CPI - which excludes energy, food, alcohol and tobacco - rose by 5.1% per annum (the lowest rate since January 2022) after a similar increase in November. Consensus estimates suggested an increase by 4.9% per annum.
Meanwhile, yesterday the Bank of England indicated the possibility of easing monetary policy as inflation falls, although it also warned of the risks associated with disruptions in trade.
While surveys of public inflation expectations are not a good direct prediction of future inflation, the Central Bank views elevated expectations as a factor which will slow inflation's fall once the initial cause of the higher inflation fades.
Citi economists said that public inflation expectations are likely to decrease in the coming months as consumer inflation slows, unless the disruption from conflict in the Red Sea increases.