Bank of England governor Mark Carney has predicted inflation is ripe for a rise in his latest conference on the publication of the Inflation Report.
Mr Carney said the “unusually low” contributions to inflation from both energy and food had a large impact on inflation and accounted for 1.5 percentage points of missing inflation.
He said 0.5 percentage points was due to domestic factors, such as slack in the labour market, something which he said persisted in spite of falling unemployment. Mr Carney said this was potentially because of the growth in lower skilled jobs.
“The MPC expects past falls in commodity prices to be short-lived and will look through them in setting policy,” Mr Carney said.
“While it could turn negative, inflation is expected to pick up notably by the end of the year.”
The governor later elaborated on this by adding: “As we get to the end of the year, inflation will be above 1 per cent” and would return to the 2 per cent target “within two years”.
The expectation is potentially bullish given the consumer prices index measure of inflation fell to 0 per cent in March.
The MPC has also cut its growth forecast with its expectation for 2015 GDP growth now 2.6 per cent - down from the 2.9 per cent estimate in February.
Its expectations for 2016 and 2017 have also been trimmed back to average 2.5 per cent.
Elsewhere, Mr Carney said predicting productivity - “doing more with less” - was one of the committee’s most “difficult judgements”.
The governor said there had been a “disproportionate growth in low productivity jobs”.
Mr Carney said in spite of this expectation for inflation, interest rates would only likely move higher at a slow pace and reach a height lower than prior to the financial crisis.