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British Consumer Inflation Expectations Fall

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British Consumer Inflation Expectations have just been published, the surveyed consumers anticipate inflation rising by 2.8% over the next 12 months. The last time this survey was undertaken back in December the expectations were 3.6%.
This is not the Retail or Consumer Price Index, these survey actual price changes and form the basis for the official inflation figures. The Consumer Inflation Expectations report is more focused on consumer sentiment, it typically runs 1% to 2% higher than the actual inflation figures but nonetheless contains two very important pieces of information.

Firstly, it is an early guide to the actual CPI data later in the month, the trend here is obviously more important than the actual number. The second and most important piece of information that is discerned from these expectation figures is an inference as to the likely spending plans of the British consumer. A high figure would suggest that consumers will bring forward planned purchases, particularly large ticket items. High expected inflation will also encourage consumers to reduce savings and increase borrowings. Likewise a falling trend as we have just seen will curtail consumer spending.

A low inflation expectation does not automatically lead to lower actual inflation. However, to the extend that it discourages short term economic activity it can become somewhat of a self fulfilling prophecy. Markets therefore tend to put a lot of stock in this relatively obscure economic indicator.

Sterling has taken very little direction this week from economic fundamentals. The data calendar has been light and even the Bank of England failed to provide reasons to trade the currency. The absence of fundamental drivers this week has not necessarily been a bad thing, the British Pound has been undergoing some very strong technical activity as it challenges the 2011 high of just under 1.68 against the US Dollar. This mornings low Consumer Inflation Expectations are weighing on GBPUSD right now, and so it falls to this afternoon’s US Non Farm Payrolls to perhaps provide the impetus for a break above 1.68.

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