m&g yougov inflation expectations survey · the m&g yougov inflation expectations survey...

M&G YouGov Inflation Expectations Survey

Q3 2013

1 year ahead (%)

Austria France Germany Hong Kong Italy Singapore Spain Switzerland UK

Feb 13 – 2.5 2.5 5.0 3.0 4.6 3.3 1.2 3.0

May 13 2.8 2.0 2.2 5.0 3.0 4.0 3.0 1.5 2.7

Aug 13 3.0 2.0 2.3 5.0 3.0 3.7 2.8 1.4 3.0

5 years ahead (%)


Feb 13 – 4.0 3.5 5.0 3.3 5.0 4.0 2.5 3.0

May 13 3.0 3.0 3.0 5.8 3.0 5.0 3.0 2.6 3.0

Aug 13 3.5 3.0 3.3 5.0 3.3 5.0 3.1 2.8 3.0

Most recent HICP/CPI* (y/y %)


2.0 1.0 1.6 6.9 1.2 1.9 1.6 0.0 2.7

The M&G YouGov Inflation Expectations Survey for August 2013 has found that consumers in most countries continue to expect inflation to be elevated in both one and five years’ time. In the UK, inflation is expected to be above the Bank of England’s CPI target of 2.0% on a one- and five-year ahead basis. All European Monetary Union (EMU) countries surveyed expect inflation to be equal to or higher than the European Central Bank’s HICP target of 2.0% on a one- and five-year ahead basis. Long-term expectations for inflation have changed little in the three months

since the last survey, with the majority of regions expecting inflation to be higher than current levels in five years. Five countries expect inflation to be 3.0% or higher in one year: Austria, Hong Kong, Italy, Singapore and the UK.

Consumers in Austria, Germany and the UK have reported an increase in one-year inflation expectations compared with those of the last survey three months ago. This is of particular relevance for the UK, where the Bank of England has stated three scenarios under which the Bank

Executive summaryConsumers continue to lack confidence that inflation will decline below current levels in either the short (1 year) or medium (5 years) term, according to the M&G YouGov Inflation Expectations Survey. Despite evidence that short-term inflation expectations may be moderating in some countries, most respondents expect inflation to be higher in five years than one year. Confidence that the European Central Bank will achieve its inflation target over the medium term remains weak, while confidence in the Bank of England has risen.

Inflation expectations

1

M&G’s Retail Fixed Interest team conducted the analysis of the first and second questions.*Harmonised Index of Consumer Prices/Consumer Prices Index. Source: Bloomberg, latest figures as at 20.09.13.

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would re-assess its policy of forward guidance. The first of these “knockouts” refers to a scenario where CPI inflation is, in the Bank’s view, likely to be 2.5% or higher over an 18-month to two-year horizon.

Short-term inflation expectations in Singapore and Spain continued their downward trend in the latest survey results, registering their third straight quarter of lower expectations.

Over a five-year horizon, the inflation expectations of consumers in Austria, Germany, Italy, Spain and Switzerland have risen. Whilst inflation expectations in Switzerland remain at the lowest level in our survey at 2.8%, consumers have raised their expectations from 2.5% in February. Long-term inflation expectations in France and the UK remained stable at 3.0%. Meanwhile, consumers in Hong Kong and Singapore have the highest expectations, at 5.0%, although the Hong Kong number shows a decline from 5.8% three months ago.

Other highlights include:

• The majority of respondents in France (75%), Hong Kong (78%), Italy (79%), Singapore (79%), Spain (75%) and the UK (61%) stated that rising inflation was a concern for them and their families at the moment.

• Nearly half of French respondents (49%) expect their net income to decrease over the next 12 months. Elsewhere, the most popular response indicated that consumers expect their net income to remain roughly the same.

• The majority of French, German, Italian and Spanish respondents stated that they were not confident that the European Central Bank is currently pursuing the correct policies to achieve price stability over the medium term, indicating that forward guidance measures may have been poorly received.

• The most popular response regarding government economic policy in Austria (48%), France (62%), Hong Kong (45%), Italy (60%), Spain (68%) and the UK (44%) was that survey participants do not believe that their government is following the right economic policies.

M&G YouGovInflation Expectations Survey

Inflation expectations

Consumer inflation expectations remain above central bank targets in most countries.

Consumers in Austria, Germany, and the UK reported an increase in short-term inflation expectations.

In the UK and Europe, long-term inflation expectations remain above the Bank of England and European Central Bank’s inflation targets. Long-term Swiss inflation expectations are trending upwards.

2

1

3

4

5

0

7

6

Austria

%

France Germany Hong Kong Italy Singapore Spain Switzerland UK

May 13Feb 13 Aug 13

Inflation expectations – 5 years ahead

3.00

3.50

3.003.30

3.50

3.003.30 3.30

3.00 3.10

4.00

3.003.003.002.802.602.50

5.00 5.005.00

5.80

5.00 5.00

3.00 3.00

4.00

2

1

3

4

5

0

6

Austria

%


May 13Feb 13 Aug 13

Inflation expectations – 1 year ahead

2.75 2.803.00

2.002.00

2.502.202.30

2.50

5.005.005.00

3.003.003.00

4.003.70

4.55

3.003.30

1.501.401.20

2.653.00 3.00

2

1

3

4

5

0

6

Austria

3.50

3.00

2.00

3.00

2.30

3.30

5.00 5.00

3.003.30

3.70

5.00

2.80 3.00

1.40

2.80 3.00 3.00

%


5 years ahead1 year ahead

Inflation expectations – August 2013

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1. What annual rate of inflation do you expect 12 months from now?

2. What annual rate of inflation do you expect five years from now?

Statistical Appendix Surveys conducted during 23-29 August 2013

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Interquartile 25th 75th range Don’t know Sample size Median percentile percentile (75th-25th) responses

Austria 500 3.0 2.0 3.6 1.6 42.4%

France 1,003 2.0 1.2 3.0 1.8 42.2%

Germany 1,009 2.3 1.9 3.0 1.1 42.7%

Hong Kong 527 5.0 3.5 6.0 2.5 15.2%

Italy 1,030 3.0 2.0 5.0 3.0 33.2%

Singapore 516 3.7 2.7 5.0 2.3 21.9%

Spain 1,028 2.8 2.0 4.5 2.5 36.8%

Switzerland 726 1.4 1.0 2.7 1.7 36.6%

UK 2,063 3.0 2.0 3.5 1.5 36.3%

Interquartile 25th 75th range Don’t know Sample size Median percentile percentile (75th-25th) responses

Austria 500 3.5 2.5 6.0 3.5 43.8%

France 1,003 3.0 1.5 6.0 4.5 47.5%

Germany 1,009 3.3 2.2 6.3 4.1 50.0%

Hong Kong 527 5.0 4.0 10.0 6.0 15.7%

Italy 1,030 3.3 2.0 7.0 5.0 38.2%

Singapore 516 5.0 3.0 7.0 4.0 22.7%

Spain 1,028 3.1 2.0 7.0 5.0 40.1%

Switzerland 726 2.8 1.5 5.0 3.5 36.8%

UK 2,063 3.0 2.2 5.0 2.8 43.4%

40

30

20

10

0

50

Tend to agree Neither agree nor disagreeStrongly agree

Strongly disagree Don’t knowTend to disagree

%


40

30

20

50

10

0

60

I think my net income will increase over the next 12 months

I think my net income will be about the same over the next 12 months

I think my net income will decrease over the next 12 months

Don’t know Not applicable – I don’t have a net income

%


3. To what extent do you agree or disagree with the following statement? “Rising inflation is giving me and my family cause for concern at the moment.”

4. Thinking about the next 12 months – do you expect your net income to increase, decrease or be about the same in 12 months’ time?

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The majority of respondents in France, Hong Kong, Italy, Singapore, Spain and the UK stated that rising inflation was a concern for them and their families at the moment.

Nearly half of French respondents expected their net income to fall over the next 12 months. In all other regions surveyed, the most popular response was that consumers expect their net income to remain about the same.

40

30

20

50

10

0

60

Fairly confident Not very confidentVery confident

Don’t knowNot at all confident

%


40

30

20

50

10

0

60

Tend to agree Neither agree nor disagreeStrongly agree

Strongly disagree Don’t knowTend to disagree

%


5. How confident, if at all, are you that your central bank is currently pursuing the correct policies in order to meet its target of price stability (ie inflation around 2%) over the medium term (ie the next 3-5 years)?

6. To what extent do you agree or disagree with the following statement? “I think that my government is currently following the right economic policies.”

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The majority of consumers reported that they are not confident that either the Hong Kong Monetary Authority or the European Central Bank is following the correct policies to achieve price stability. Compared to May, the Bank of England registered a 7-point increase in confidence after it announced ‘forward guidance’ in early August.

41% of French and Spanish survey participants strongly disagree that their government is currently following the right economic policies. Singapore registered the highest percentage of respondents that supported government economic policy, followed by the UK and Switzerland.

All figures, unless otherwise stated, are from YouGov Plc. Total sample size for each country was Austria (502), France (1,003), Germany (1,009), Hong Kong (527), Italy (1,030), Singapore (516), Spain (1,028), Switzerland (726), UK (2,063) adults. Fieldwork was undertaken between 23-29 August 2013. The survey was carried out online. The figures have been weighted and are representative of all adults in each country (aged 18+).

The majority of consumers reported that they are not confident that either the Hong Kong Monetary Authority or the European Central Bank is following the correct policies to achieve price stability. Compared to May, the Bank of England registered a 7-point increase in confidence after it announced ‘forward guidance’ in early August.

41% of French and Spanish survey participants strongly disagree that their government is currently following the right economic policies. Singapore registered the highest percentage of respondents that supported government economic policy, followed by the UK and Switzerland.

Inflation expectationsmethodology

M&G’s Retail Fixed Interest team analyses the statistics for the answers to the first and second questions in the survey (ie, the expected annual inflation rates in 12 months and 5 years from now). To achieve this, all answers are first ranked in ascending order, and several percentiles are subsequently determined. In this context, percentiles are expected inflation rates below which a certain percentage of responses can be found. For instance, the 50th percentile, the so-called median, is the middle value of the distribution, dividing the data set into a lower and an upper 50%. If there is an even number of values, the median is determined by calculating the average of the two middle values. In the statistical analysis of the survey, we have chosen to use the median rather than the arithmetic mean because this is less affected by extreme values. To determine the dispersion of answers, the difference between the 75th and 25th

percentiles is taken. Finally, the number of ‘don’t know’ responses is divided by the total number of responses and the resultant percentage is recorded as an indicator of respondents’ level of uncertainty around inflation. Data processing for the remaining questions (three to six) is conducted by YouGov. Here, percentage values are calculated for each answer option by dividing the number of respective responses by the total number of responses.

The content of this report should not be regarded as a recommendation, advice or forecast regarding inflation expectations.

GlossaryInflation: the rate of increase in the cost of living. Inflation is usually quoted as an annual percentage, comparing the average price this month with the same month a year earlier.

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Issued by M&G Securities Limited and M&G International Investments Limited. Both are authorised and regulated by the Financial Conduct Authority in the UK and have their registered offices at Laurence Pountney Hill, London EC4R 0HH. SEP 13 / 45148 8

Who is YouGov?YouGov is an international market research agency with sector specialist teams serving the financial, media, technology and telecom industries. They are considered a pioneer of online market research and are the most quoted market research agency in the UK. In August 2012, they were named as one of the world’s top 25 research companies by the Honomichi Top 25 Global Firms.

For quantitative research, YouGov uses an online panel of adults, who are profiled across a range of demographic, attitudinal, lifestyle and marketing characteristics. The emphasis is put on quality rather than quantity and restrictions are put in place to ensure that only those selected from this panel are able to take part in the survey.

Cash incentives are used to encourage participation and prevent an overwhelming influence from those with a particular interest or ‘axe to grind’. In the UK, France and Germany, the panels are constructed by YouGov and consist of over 360,000, 77,000 and 180,000 adults respectively. In the other countries, a panel partner of YouGov conducts the survey using an online interview. The panel sizes for these countries are as follows: Austria (17,995), Hong Kong (15,048), Italy (101,164), Singapore (20,762), Spain (103,493) and Switzerland (14,458).

For qualitative research, they use online forums, face to face focus groups and cognitive interviews. This information is then either used stand alone or is fully integrated with their quantitative research.

Once collected, the data is weighted using either each country’s census, if available, or industry accepted data, to help make the sample as reflective of the general population as possible.

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