Is the inflation genie out of the bottle? If not, are we – to misquote Chief Brody in the film Jaws – going to need a bigger bottle?
We’ll get another clue on Friday when the Bank of England’s TNS inflation attitudes survey should show another jump in inflation expectations.
In the statement following its May meeting, the Bank’s monetary policy committee said; "With monetary policy acting to ensure that longer-term inflation expectations are anchored at the 2% target, upward pressure on CPI inflation is expected to dissipate over time."
If this indicator continues to show that near-term inflation expectations are not anchored at all-around 2%, the Bank’s Monetary Policy Committee may feel more pressure to accelerate their tightening, said BDSwiss's Marshall Gittler.
The two most important readings to track are the 12-month ahead index and the “more important” medium-term inflation expectations measure, said Deutsche Bank, predicting 5.5% and 4% respectively.
Things are a little better in the US, as Friday’s consumer price data should show a further slowdown in the rate of inflation.
“One data point isn't a trend, but are two?” wondered Gittler. “Two consecutive declines in the year-on-year rate of inflation could signal a turning point in the fight against inflation. That could boost stock market sentiment globally.”
Significant announcements expected
Finals: Mind Gym Ltd
AGMs: Ergomed PLC (AIM:ERGO, ETR:2EM), M P Evans Group PLC, Starwood European Real Estate Fin Ltd, THG PLC (LSE:THG), Ultra Electronics Holdings, XLMedia PLC (AIM:XLM, OTC:XLMDF)
Economic announcements: Consumer Price Index (US), U. of Michigan Confidence (Prelim) (US), Budget Statement (US)