Tuesday, 17 May 2011

UK CPI Inflation on track with rise to 4.5%


The chart above is the February 2011 Bank of England 'Fan' chart of UK inflation expectations. As can be seen the central case is for a rapid fall inflation. Last month indeed inflation did retreat a bit, but figures out this morning show CPI inflation powering back to 4.5% (RPI fell slightly to 5.2%).

Luckily for the Bank this is just about in the tolerance zone for the ridiculous chart they publish above (if you look it at any one point i only 'predicts' inflation to within a 4% band).

For how long though will the UK carry on in its path of debt inflation. Clearly the Bank of England has not a clue, if you look back at these charts to a year ago they were expecting inflation to be down to under 2% by now. It was nonsense then and is nonsense now, inflation is going nowhere but higher unless the commodity collapse continues and fiscal stimulus is withdrawn worldwide.

The UK Government will be happy though, the national debt is being inflated away along with its citizens wealth. It is a sad wight to see a Government betray its own people in this way, but then with so many against the 'cuts' in the UK perhaps this is the only palatable way of delivering them. If you are a saver or have any valuables at all though you really by now should be fully stocked with non-UK assets, preferably not even Sterling denominated assets - Why?

Because either this will work and that will be the only way you can maintain your relative real wealth, or this still does not work and we have another financial crisis that ends in a massive domestic wage spiral and 1970's style 20% inflation.

16 comments:

Sean said...

Shall we just all be honest with ourselves and rename Inflation the debt tax?

Nick Drew said...

thank heavens for the reintroduction last week of NS&I's tax free inflation-plus product eh ?

this is not qualified financial advice of course, it's just a comment in a blog but ... buy with both hands !

(after doing yer own DD, just MHO, etc etc)

Blue Eyes said...

It shows how much the landscape has changed that people are moaning about 5% inflation. Not very long ago, 4% inflation was regarded as an unattainably low goal.

We haven't yet seen the deflationary impact of spending reductions. Rates will remain low for a good while yet.

Bill Quango MP said...

ND : 5 year term only on those now. Used to be 3.

I passed the full allowance because of that. The Tax man wants his money before 5 years.
But I'm tempted for a limited amount.

Bill Quango MP said...

Mervyn just said "We must be careful in tackling inflation or we will undershot our 2% target."

Ohhhhh...now i get it. We might have too low inflation, so we need plenty of too much to prevent that happening.

Elby the Beserk said...

Filling my van has gone from £100 to £120 in 5 months. What's that? 48% annual inflation?

Food we know is already at 4.7% and also touted to rise.

Energy prices slated to rise by (another) 10% this year?

Real inflation for most folk, i.e. those who can't afford much more than the basics, is in reality over 10% pa.

Unsustainable.

Electro-Kevin said...

Agreed, Elby.

I don't know where this 4.5% comes from.

And the trajectory looks worryingly steep too. Combined with wage freezes and threats of job cuts.

Electro-Kevin said...

Let's not forget hidden inflation in the form of degraded goods and smaller quantities in packets. Is this being accounted for ?

Electro-Kevin said...

...I seem to be getting through Special Brew and fags at an alarming rate.

Demetrius said...

My personal inflation, far removed from the government consumerist fixed figures is running at 11%. This seems to be in common with many other people in the real world.

Anonymous said...

UC what's the betting that it will not hit 5% the BoE have never been to get the inflation correct, I think that they try (unsuccessfully)to talk the figure down for the following month. Petrol go up to £1.50, food up, gas & electricity up.

rwendland said...

No-one seems to have mentioned 1.something% of the 2011 increase will down to the VAT increase. Which would not have been predicted in the older BoE forecasts, and will drop out 2012.

(Full rate VAT items up 2.1%, so I guess about half of that in CPI.)

Steven_L said...

EK - both the CPI and RPI methodologies take pack size into account.

CityUnslicker said...

Rwendland - unless they put up VAT again, or other taxes.

I don't belive for a second now the Bank of England are really targeting low inflation. They have a funny way of going about it if they do, pumping printed money into the economy.

The Government are happy that the deficit is reduced (although inflation reduces the tax take too, so it is not win in even for them) at our expense.

Yet I have no alternative to offer - more soending is no the answer. All I can say is that I would not start from here, but that is not very satisfactory.

Budgie said...

You lot! Don't you know someone has to pay for the politicians and bankers trivial misjudgments? Who better than us? A savings tax is the best way (according to our betters) and inflation is the most pain free (for the aforementioned betters). The lord loves a happy giver .... so cheer up, there's lots of giving to be done.

Anonymous said...

You can cash in an NS&I bond early though, can't you? You lose some of your interest, but it still keeps up with RPI.