Tuesday 14 December 2010

The Government's inflationary Plan A

Lots of discussion today about a Government Plan 'B' for what to do in a slow down. the clear answer more Quantitative Easing. Labour are trying to score some very weak points from this, they are so lucky the Lib Dems have imploded as their own positions are beyond weak.

However, two graphs below demonstrate what the real Plan A is.

The above shows the dire state of UK finances over the last couple of years and the non impact thus far of the new administrations cost cutting measures. Below UK inflation:

As we can see, inflation has been allowed to accelerate as we get into more debt, this has the handy function of keeping the real level of debt down for the Government. All the while making the population all the poorer. I can't see this situation improving for years - higher inflation here we come; get those wage demands in!


Bill Quango MP said...

We've been warning of it all year CU.
These are Pre-Vat increases.
Pre- summer lines too. Clothing is reported at about 2.5% higher.Bearing in made the Xmas sales are already on and a number of chain stores ran 1 day or 20% off weeks real clothing inflation should be much higher. I will be amazed if Spring collections aren't 5-10% higher.

Add in the big rises in heating bills and petrol and government will have a job to keep inflation below 4 maybe even 5%.

Are they going to continue pretending 2% is the target rate? Will Mervyn really have to write to explain his actions every month for the next 18?
Or will he just have a photocopy..

"Prime Minister,
I write to advise you of why inflation is above the government target and must inform you of the reason..

Steven_L said...

Wage demands? You're joking, only the union are allowed to negotiate here in council land - and they are out making demands on behalf of 6th form students and welfare junkies or picketing mobile phone shops instead.

I know of one council where everyone is taking a 5% cut in hours and pay.

What's the latest prognosis then? Japan? 1970's? 1930's? House price inflation is such a wonderful thing isn't it?

Anonymous said...

Wage demands? No this is purely a monetary phenomenon caused by the injection of cash and a very loose monetary policy supporting credit creation and keeping the Pound depressed

It's when we see second-order effects like wages going up that things will either get very messy or we see rates going up.

What's curious is that the Bank is behind this but it hasn't got the courage to admit it.

Charlie said...

Wage demands?!.. come to Belgium, the Government forces employers to give their staff annual increases and employees are obliged to accept 14 monthly pay packets per year.

Oh the humanity!

Electro-Kevin said...

Higher wage demands must = higher interest, surely ?

Whatever happens the average consumer gets a tough time of it.