12  By contrast, they contain no significant information about future inflation beyond past inflation itself. In other words, in regressions of inflation on lags of itself and lagged expectations, the estimated coefficients on the latter are typically statistically insignificant. 13  David Miles made this point in a recent speech (Miles (2015)). To take a few of many studies, see also Hansen and Singleton (1982), Campbell and Mankiw (1989) and Canzoneri et al (2005). 14  Bachmann et al (2015). 8  BIS central bankers’ speeches  International experience: proper deflations are rare, especially in countries with floating currencies That doesn’t mean we can rest entirely easy. In particular, it would be wrong blithely to assume that positive nominal income growth will continue, come what may. Deflations have to start somewhere and there is a risk that falling prices will beget yet weaker or even negative wage growth – that today’s “good” deflation will metastasise into something a good deal worse. Bordo classifies “bad” disinflations as those that coincide with recessions, “ugly” episodes as steep and generalised falls in nominal quantities, all the uglier in the presence of large gross debts. However, my own view is that the chances of such an outcome are relatively low. I say that partly because base effects will naturally give a big positive impetus to annual inflation in early 2016.
In practice people may take time to react to real income shocks; it’s also possible they expect some of the recent declines in energy prices to be reversed 10. But, in the data, there’s no correlation between household saving rates and changes in real energy prices, either here or elsewhere in the OECD 11. This suggests their effects on income are in general matched by equivalent shifts in real spending. Note that the UK is not the only place where consumer confidence has risen in recent months (Chart 10). 9  This point was made in a recent speech by the Governor (Carney (2015)) and, in an article, by Kristin Forbes (2015). 10  Forward markets discount an oil price of $ at the end of next year, quite a bit higher than the current spot price though still well below where it was in mid-2014 $ and $ respectively). 11  In regressions of changes in saving rates on the contribution to real income growth of energy and food prices, the estimated coefficient is close to zero and statistically insignificant in all 17 OECD countries for which we have data. BIS central bankers’ speeches  7  Nor is it unusual to see stronger demand at a time when these survey measures of household inflation expectations are falling. Typically, these near-term expectations surveys track actual inflation 12.