Thursday, March 27, 2008

The central banks dilemma

UK inflation expectations are jumping higher in March. Two surveys show that Britons are becoming increasingly wary of their central banks ability to contain price stability. Consumer prices are expected to rise by 3.6 percent over the next 12 months, that is up from 3.1 in February. High energy and food prices are putting pressure on consumer sentiment. Inflation expectations in the US have also moved higher according to the Conference Board Sentiment index, which jumped 7 points in March to 6.1. In January 07 the same index stood at 4.7! Although not dramatic yet this developments point to an increasing dilemma at the Federal Reserve and other central banks. Easing monetary policy to stimulate growth seems increasingly at odds with price stability.

Inflation expectations outside comfort zone, Thursday Jan10, 2008
UK inflation expectations jump higher in March - YouGov/Citigroup

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