Have we underestimated sterling’s inflation impact?

CPI inflation surprised on the upside again last week, largely due to a few components that tend to be more responsive to exchange rate movements. This begs the question of whether we (and many others) are underestimating the size of the pass-through from the fall in sterling to consumer prices and thus overall inflation’s forthcoming rise. Inflation has been higher than the consensus estimate in five out of the last eight months and notably higher than the Bank of England’s August Inflation Report forecast in recent months too.