UK inflation on track to rebound to 2% official target – BOE’s Forbes

FXStreet (Mumbai) - Speaking at London School of Economics, the Bank of England (BOE) policymaker Kristin Forbes said on Wednesday, inflation in UK is expected to start returning up toward its official target assuming there are no more sharp movements in the exchange rate or energy or food prices.

Forbes noted, "There is currently no sign of major asset price or housing deflation, which has in the past led to deflation being correlated with lower growth. Instead, some convincing evidence suggests that consumers tend to spend more, not less, on items whose prices fall,"

"there is not yet any evidence that low inflation has significantly held back wage growth. Instead, wage growth has picked up over the period that inflation has fallen."

On the sterling appreciation and its impact on the CPI, Forbes said, "While there is a substantial amount of uncertainty about exactly how long it takes for sterling’s movements to pass-through into inflation, it is likely that the greatest drag on inflation from this recent appreciation would be in late 2014 and early 2015."

"the drag from sterling’s appreciation will take longer to fade than the year or so from the drag from lower energy and food prices".