The further rise in CPI inflation in April – which triggered another letter from the Governor to the Chancellor – prompted claims that the MPC is being too sanguine about the inflation outlook. But we still think that the MPC is right to expect inflation to fall sharply. It will take time for the slack in the economy to have an effect on prices. The recent falls in import price inflation should now start to feed through. And inflation expectations tend to be a lagging, rather than leading, indicator of inflation. We still expect inflation to fall close to, or even below, zero.
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