The Bank of England’s (BoE) May quarterly inflation survey indicates that householders think that inflation will rise in future to 3.3%. This is an increase on last quarter’s expectation of 2.5%.
These figures show that the public think that the BoEeither cannot or will not take action to keep inflation within their remit at the figure of about 2%.
One of the dangers with this is that workers may be tempted to ask, or even strike, for pay rises in order to maintain their spending power. This could of course lead to wage increases spiralling further fuelling inflation.
In a Times report the BoE together with Citigroup and Capital Economics economists believe that the long term inflation picture looks stable. Factory gate prices have stabilised after an earlier blip, which should keep inflation in check unless fuel prices rise again.
But at the end of the day it is the prices that people pay on a day to day basis that will matter most to public perception. Large ticket items may tumble in price but most people make these purchases rarely and may view low prices as a lucky bargain. This is fuelled by advertising and marketing that will portray lower prices not as an economic necessity but as a ‘give-away’.
There is also the downward pressure on wages that a recession brings. People worried about job losses may be more likely to take a pay cut or reduce hours (and therefore pay) just to keep an income, rather than taking an employer on in collective strike action with uncertain outcomes.