LONDON (Reuters) - British inflation is more sensitive to changes in the value of sterling and commodity prices than existing economic models suggest, Bank of England official Kristin Forbes said in a research paper released on Friday.
“The exchange rate is significantly correlated with movements in the slow-moving, persistent trend (in UK inflation),” Forbes said in the abstract of the paper.
“Other variables emphasised in standard inflation models - such as slack and inflation expectations - may also play some role, but ... the magnitude of their effects is substantially smaller than for commodity prices and the exchange rate,” she added.
Forbes has voted for an increase in the BoE’s main interest rate since March, but her three-year term on the central bank’s Monetary Policy Committee expires at the end of the month.
She co-authored the paper with two BoE researchers, Lewis Kirkham and Konstantinos Theodoridis.
Reporting by David Milliken, editing by Andy Bruce