A New Keynesian model is used to derive a relationship between current and
expected future inflation taking into account future inflationary pressure.
This relationship is employed to examine inflationary dynamics resulting f
rom real disturbances to the economy. Positive current inflationary pressur
e can be associated with either rising or falling inflation-a phenomenon wh
ich has received little attention to date. A data-based model of the UK is
used to provide further evidence on the nature of the response of inflation
to real disturbances and to quantify the importance of inertia in goods an
d labour markets.