Home > Data, Inflation > Correction: Inflation Partly a Petroleum Phenomenon

Correction: Inflation Partly a Petroleum Phenomenon

A mea culpa.  I posted a chart of UK inflation expectations last month which showed no decline in gilt market-implied inflation expectations with the decline in the oil price.  I was puzzled that published forecasts of expected inflation did not show the same decline as the market data.  The reason is that my data was wrong.  Sorry!

In fact I had posted the chart which was based on data for the forward measures of inflation, which comes from a different sheet in the Excel spreadsheet which the Bank publishes for the yield curve.

The correct chart for implied RPI inflation over the next 2.5 years is:

UK Market Inflation Expectations (2.5 Year).  Source: BoE

UK Market Inflation Expectations (2.5 Year). Source: BoE

By looking at the change in inflation expectations across different durations, we see that shorter-term inflation expectation have declined with the fall in the oil price:

UK Market Inflation Expectations (2.0, 2.5, 3.0 Year).  Source: BoE

UK Market Inflation Expectations (2.0, 2.5, 3.0 Year). Source: BoE

Here is the comparison with the forward measure which I used by mistake in the old post; the green line is expected inflation over the period from today to 2018, the blue line is expected inflation over 2018 to 2021.

UK Market Inflation Expectations (3 Year vs 3Y/3Y Forward).  Source: BoE

UK Market Inflation Expectations (3 Year vs 3Y/3Y Forward). Source: BoE

 

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Categories: Data, Inflation
  1. james in london
    January 22, 2015 at 08:28

    And so the two dissenters on the BoE MPC became none. I thought they wanted to get ahead of the curve and stamp out the evil of rising earnings growth? Vacancies at all time highs, employment growth driven by full-time jobs, noiminal wages rising the fastest in two years, come on guys show the courage of your convictions and stop these dangerous, wealth-creating, trends now! Pretty soon people might even be happy.

    • January 22, 2015 at 08:41

      Good news on the hawks, James. The uptick in wages they were looking for… I’m not seeing it in the data yesterday. Priv sector regular pay up 1.4% year to November, and avg weekly hours worked up 0.6%, that means hourly wages have hardly moved in 2014.

      I’m happy about the 5.8% figure!

  2. james in london
    January 23, 2015 at 11:38

    I was looking at the trend lines in table 6.1, and the “golden cross” as nominal overtakes CPI -even if all lines are pathetically low and must have error bars wider than any postive movement.
    http://www.ons.gov.uk/ons/dcp171778_390755.pdf

    Anyway, things can only get better now Draghi has the old enemy on the run. The completeness of the rout is fairly unbelievable, but still true. Lars’ blog at the MM sums it up very well.

  3. james in london
    January 23, 2015 at 11:47

    I don’t know whether to leave a comment at Moaning Macro this morning. Would it be too too cruel to point out his spectacularly poor timing in raking over old stuff when such big new stuff is happening?

    I suppose it’s a consequence of thinking expectations don’t play much of a role in monetary policy. The long and variable lags give you plenty of time to come up with alternative explanations for a collapsing currency.

  4. jamesxinxlondon
    January 24, 2015 at 08:50

    Ok. Mea culpa. I have now had time to read Mainly Macro’s blog on day of the big ECB SQE, and it is quite good! Still, funny timing. Perhaps S W-L didn’t want anyone to notice it, but then why post it?

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