The next 12 months will see a rapid change in measured inflation. In the UK, it is likely to return to its target by the middle of the year, as the one-off effects of Covid wash out of annual inflation rates. Thereafter, the MPC foresees UK inflation remaining around its target level. The risks around this projection are, in the MPC’s judgement, large but balanced. That these risks are large is fully justified by the high degrees of uncertainty that exist around the forces driving inflation in future, as I have discussed here. But given likely trends in these factors, my judgement is that the risks to inflation in the UK are skewed to the upside, rather than being balanced. Certainly, there are good grounds for believing future inflation may behave very differently than in the past. My judgement is that we might see a sharper and more sustained rise in UK inflation than expected, potentially overshooting its target for a more sustained period, as resurgent demand bumps up against  22  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  22  constrained supply. Financial markets globally have begun pricing this possibility recently, with measures of inflation expectations rising in the US and, to lesser extent, euro-area (Chart 17). Chart 17: Tail Risk in US and Euro-area Inflation Expectations. Source: Bloomberg Finance L.P and Bank calculations. Note: Tail risk is the option-implied inflation tail risk, 5-years ahead measured at the 95th percentile. Inflation is the tiger whose tail central banks control.
In that light, it is worth assessing the likely forces acting on inflation in the period ahead and possible alternative inflation scenarios, both to the upside and downside, around the central path. In a  highly-uncertain environment, where robust policy may call for avoiding tail outcomes rather than optimising around a central path, this scenario-based or risk-management approach seems particularly valuable. 2 I begin by discussing the powerful disinflationary forces at work over the past several decades at the global level. There is a reasonable chance these trends could persist, and indeed be amplified by the Covid crisis, posing downside inflation risks. In the following section, I then consider whether those disinflationary forces could abate, or even reverse, in the period ahead. If so, this would generate an upside inflationary scenario. Given high degrees of uncertainty, it would be spuriously precise to assign probabilities to either scenario. But given the width of the MPC’s fan charts both are clearly plausible paths, sufficiently so to weigh in monetary policymakers’ risk-management considerations when setting policy, now and looking forward. Friedrich von Hayek once referred to inflation control as akin to trying to catch a tiger by its tail. 3 That metaphor seems apt today. For many years, the inflationary tiger slept. The combined effects of  unprecedentedly large shocks, and unprecedentedly high degrees of policy support, have stirred it from its slumber. In this environment, the tiger-taming act facing central banks is a difficult and dangerous one.