Tuesday 15 June 2010

May Inflation Down

Some good news for the Bank of England at last. Both CPI and RPI inflation fell in May. The Bank has been way out, on the edge even of its ridiculous fan charts, for some time. In a more normal environment the pressure to raise interest rates would be extreme. Now at last there is a shroud of respectability in the constant predictions that inflation would fall off.

Now the writers of this blog are split. I am with the deflationists in seeing no move yet to high inflation (ultimately of course this is the policy goal of all major Western Governments except Germany faced with Chinese mercantilist policies), but with it building up in 2011 and 2012. As such my forecast has been for low rates until the end of this year and then a sharp rise, much more than will be comfortable through to 2013/14 or whenever the next bust begins.

Nick Drew and Bill Quango are far more of the view that the Bank of England is wrong and that inflation is here already to stay and can only go up - hence buying Gold and stocking up on baked beans.

We will see, but this is an interesting point, a return to inflation in the next 2 months will mean a rate rise, a continuation of the fall will mean rates staying ultra low, possibly well into 2011.

S overall, more bad news for savers and good for debtors.


Bill Quango MP said...

Its still the oil price moving inflation.
Tesco today, with their terrible 0.1% growth blamed the slowdown, at the bottom end of most analysts’ forecasts of between zero and 1 per cent growth, on very low food inflation. .. high petrol prices meant customers had less to spend on food. Adding in petrol sales, UK like-for-like sales were up 3.8 per cent.

That means ..as Liam Byrne said, there is no money left. Fuel price up, food price down. {Food prices, which have transport costs should rise with fuel price.}
If Tesco figures are similar to other retailers then a round of summer sale discounting seems likely, so lowering inflation, but also growth.

Steven_L said...

They are saying the fall is because of grapes LOL!

They all set the price point for summer fruit about April/May in order to boast about phoney 'half price' offers for the next 4/5 months.

Next month it'll be stawberries as the notorious 'double crossover' kicks in.

Read the report, motoring on the RPI measure is at 16% YoY, even communications, a deflationary influence for years is at 5% Yoy on the CPI measure.

Average Joe consumer is about to get pillaged, brace for the insurance premium tax hike, 20% VAT and beer duties!

I think I'll do a post over my place on inflation tonight!

Jan said...

May's inflation may be down but it's still above target of 2% and has been for months so your heading is misleading.

I don't see any signs of deflation. Prices keep going up in my experience which is worrying for those on fixed and/or low incomes eg the price of butter is 98p in my local Tesco and Sainsbury whereas a week or so back it was 86p. I don't know how they can say food prices are going down. It's not true!

Is it just a ruse to inflate away our debts?

Steven_L said...

No, not your debts Jan, your high consumption lifestyle.

Old BE said...

Price of a standard loaf of "real" bread in Tesco is back down from its peak at 109 to 90p. It's one of the few items I notice the price of in the supermarket. Quite a big shop that I did on Sunday came in below my expectation.

Will be interesting to see whether the budget is to be inflationary or deflationary. Income tax and CGT rises will push demand and prices down, I would think, compared with VAT and "sin" taxes.


Andrew B said...

After a period where money was pumped into the economy (by borrowing and later on QE),
it is clear the fashion is now to effectively suck money out by repaying debt.

There are always a few surprise waves at the top of the tide.

The only chance of getting wet is from a tidal wave (external commodity shock),
or we all run in to the sea (and give ourselves large pay rises).

Of course I may be proved wrong by tomorrow, but I see little evidence of either event.

Through a process of sheer incompetence, I think the govt (and A Darling RIP) have not got it too wrong (yet).

For me the betting is currently more on a double dip rather than inflation.

Eckersalld said...

I'm moving some of my money from the bank to the stock exchange in an attempt to make something from it!

Off topic, but anyone know if LON:BP is the same as BP.L? I was reading the share price as being £3.42, but it seems *a* share is £342.00 according to my dealers account...

Being a nascent and currently naive investor, I don't want to be buying the wrong stock by accident! :D

Pavlvs said...

Saying that defaltion is now a possibility is akin to saying that a car slowing from 100mph to 90mph is now well on the way to being a safe driving speed in city centres.

Plain and ugly deception. Inflation is still waay above target and the 'emergency' rate cut to an unfathomably low 0.5% is now in its fifteenth month.

Stop idly chomping on the crud you're being fed and LOOK AT THE DATA.

Steven_L said...

I've given my take on this "Let them eat pork, grape and mayonnaise sandwiches

Budgie said...

Andrew B said: "... it is clear the fashion is now to effectively suck money out by repaying debt."

No, when the government borrows from (or taxes) the UK public it sucks money out of the real economy.

And No again, we are not repaying debt (or even about to), the Cleggerons are merely planning to borrow slightly less than Labour.

And No, repaying debt is not a "fashion" - the money is someone else's and they want it back.

What is always missed by Labour ex-ministers, MPs and supporters is the sheer size of the debt. If it does reach £1.4 trillion as Labour estimated, to repay the debt our economy will be hit by outflows twice as bad as the recession every year for 20 years.

All because Labour does not understand that borrowed money is not theirs. UK government debt (of this size) did not 'start in America', it started with Gordon Brown and Labour. It will be a ball and chain for our children for half their working lives.

Anonymous said...

We had house price inflation. That bubble has burst and the government is even now desperately trying to prop the bubble up. Similar story in the stock market.

I suspect we will see deflation in both shortly.

CityUnslicker said...

Obsidian - see my next post re BP.
Pavlvs - Deflation in our messed up economy is way more likely than hyperinflation. Inflation is next years story.

measured said...

While we have had some inflation but this will abate for a while as everything is now set to remain steady until the end of the year. There is no doubt that inflation and interest rate rises are in the pipeline after the tax rises and the public sector cuts. I am still not inclined to borrow cheap money, but I hope you are all investing in those special offers on beer at the supermarkets during the World Cup. Don't drown your sorrows immediately. There will be plenty of time to do that in 20011/2012.

Anonymous said...

Have to say I think it is a blip. The CPI only fell by .03% and the RPI fell less than expected. Fuel prices will surely rise higher esp if Obama's anti BP stance co-ntinues and puts doubt over Deep Sea drilling.