The reason behind the lift in inflation expectations owes much to the market expectations that a sharp increase in the monetary base (i.e., the monetary base defined as the total of banknotes and coins in circulation and the amount outstanding of financial institutions’ current accounts held at the Bank) in order to achieve the 2 percent price stability target, with a strong commitment, will eventually lead to an increase in bank lending, and hence an increase in the amount of money (i.e., sum of cash and deposits) circulating in the economy.
If the money in the economy increases, people will expect that it will be used partly for the purpose of purchasing goods and services, and eventually the rate of inflation will start to pick up as well.