Andrew Bailey yesterday signalled that interest-rate rises are nearing a peak.
The Bank of England Governor said the rate was "much nearer now to the top of the cycle" following 14 consecutive rises in borrowing costs.
Sterling slumped to a three-month low of $1.25 against the dollar following his comments.
Mr Bailey said: "Many of the indicators are now moving as we would expect them to move and are signalling that the fall in inflation will continue."
He added that the drop in inflation "will be further quite marked by the end of this year".
So far, inflation has fallen from a peak of 11.1% last October to 6.8% in July.
Downward trend
A rise in petrol costs is expected to push up consumer price inflation briefly in August before continuing the downward trend.
It suggests the Bank may soon be able to stop raising the interest rate, which has surged from 0.1% in December 2021 to 5.25% now.
Financial markets expect the rate to rise to 5.5% at the next meeting of the Bank's Monetary Policy Committee (MPC) on September 21.
However, traders have now trimmed their predictions for future rate rises, as they are increasingly uncertain whether or not the MPC, which Mr Bailey heads, will raise rates to 5.75% later in the year.
Mr Bailey said: "There was a period where it was clear rates needed to rise going forwards and the question for us was by how much and over what timeframe, but we are not I think in that place any more...we think policy is now restricted in its impact.
"The judgements now are much finer. I think we are much nearer now to the top of the cycle. I am not therefore saying we are at the top of the cycle, because we have a meeting to come. But I think we are much nearer to it on interest rates, on the basis of current evidence."
Cause for concern
However, the governor said there were still parts of the economy that gave the Bank cause for concern when it comes to taming price rises.
The jobs market has been strong and workers have been pushing for pay rises to make up for losses in their living standards, which the Bank has warned risks embedding more inflation in the economy.
So far businesses surveyed by the Bank have said they expect pay rises to slow to 5% next year. This would represent a fall from current rates, with pay surging by 7.8% in the three months to June - the fastest pace since records began in 2001.
The Telegraph says Mr Bailey has suggested that wage-growth data is now the most important factor for the Bank when deciding interest-rate policy.
He told MPs that he hoped the downward trend in inflation data would reassure households the Bank is on its way to meeting its 2% target.