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5 "Tells" that the Stock Markets Are About to Reverse

UK CPI Inflation Falls to 3%, RPI Remains at 3.7%

Economics / Inflation Mar 23, 2010 - 11:36 AM GMT

By: Nadeem_Walayat

Economics

Best Financial Markets Analysis ArticleUK CPI inflation fell back unexpectedly for academic economists to 3% from 3.5% the month before, the Bank of England's forecast for UK inflation by the end of 2010 is 1% not 3% which continues to illustrate the Bank of England is failing in its primary role of accurately targeting an inflation rate of 2%.


The Bank of England's track record is one of abysmal failure when it comes to inflation forecasts and targeting where the mantra of UK inflation being at 2% in 2 years time only having been achieved approx 4% of the time, i.e. there is a 96% probability that inflation in 2 years time will NOT be at 2%.

Meanwhile the real rate for UK inflation as measured by the publically more recognised RPI index remains at 3.7% and stripping out the effects of manipulated low interest rates as a consequence of Quantitative Easing and other direct interventions such as funneling tax payer cash onto bank balance sheets leaves the RPIX at 4.2% which better reflects actual UK consumer price inflation experience and is inline with my own real inflation tracker that stands at 4.32%

Deflationists that populate the mainstream press and academic institutions continue to argue the case for DEFLATION, whilst missing the obvious point that the general prices in the economy are INFLATING and NOT DEFLATING, the argument is similar to those that have persuaded most retail investors to remain scared of investing in one of the greatest stock bull markets in history that bottomed in March 2009. Subscribe to my always free newsletter for an imminent in depth update to be sent out this week.

UK Inflation Forecast 2010

My analysis since November has been warning of a spike in UK inflation as part of an anticipated inflation mega-trend (18 Nov 2009 - Deflationists Are WRONG, Prepare for the INFLATION Mega-Trend ) that culminated in the forecast of 27th December 2009 (UK CPI Inflation Forecast 2010, Imminent and Sustained Spike Above 3%). As the below graph shows, today's inflation rate falling from 3.5% to 3% whilst catching the academic economists that populate the mainstream press and economic think tanks (political lobbying agencies) off guard, is inline with my forecast trend expectations as UK inflation is expected to trend above 3% for most of the year.

Apart from hitting workers in terms of falling pay in real terms, inflation also eats into the real value of savings deposited at virtually ALL British banks and building societies that even now, are engaged in cutting the rates offered to savers to as little as 0.1%, as my earlier analysis illustrated (23rd Jan 2010 - UK Savers Losing Money on Virtually ALL Instant Access Savings Accounts) That virtually all accounts LOSE savers money in real terms AFTER inflation and AFTER the 20% Savings tax. That situation has now deteriorated even further as savers subsidise the bankster bonuses via loss of value of savings deposited in tax payer bailed out banks.

The key driver of the inflation mega-trend remains that of the Bank of England continuing to monetize huge government budget deficits for many years where even plans to halve the annual deficit will not be able to prevent the manifestation of high inflation as ever more supply of fiat currency continues to chase scare resources, hence driving inflation continuously higher.

The Inflation Mega-Trend

The full implications of the unfolding inflation mega-trend including forecasts trends for major markets for many years are contained within the NEW FREE Inflation Mega-trend ebook , which includes analysis and precise forecasts for:

  • Interest Rates
  • Economy
  • Inflation
  • Gold & Silver
  • Emerging Markets
  • Stock Markets
  • Stock Market Sectors and Stocks, including ETF's
  • Natural Gas
  • Agricultural Commodities
  • House Prices
  • Currencies
  • Crude Oil

The 109 page ebook is being made available for FREE, the only requirement for which is a valid email address. To find out how to protect your wealth against the inflation mega-trend get your free copy of NEW Inflation Mega-Trend Ebook NOW.

UK Interest Rate Implications

The mainstream view continues for NO change in UK interest rates this year, this is illustrated by Roger Bootle of the Daily Telegraph assertion that he expects UK interest rates to stay below 1% for the next 5 years. Meanwhile market interest rates have already risen as the bond markets price in higher inflation and interest rates, with the bond market targeting a year end interest rate of between 4.5% and 5% for UK bonds which will have severe implications for the financing of Britians huge and growing £1 trillion debt mountain (PSND) with total liabilities extending to more than £3.7 trillion.

My in depth analysis of 13th January (UK Interest Rate Forecast 2010 and 2011 ) concluded with the following forecast, that takes into account that despite the Bank of England wanting to keep interest rates at 0.5%, the market as a consequence of inflation and debt will force the Bank of England to start raising rates -

UK Interest Rates Forecast 2010-11: UK interest Rates to Start Rising From Mid 2010 and Continue into end of 2010 to Target 1.75% / 2%, Continue Higher into Mid 2011 to Target 3%.

Subscribe Now to my always free newsletter to receive the Inflation Mega-Trend Ebook for FREE.

Source: http://www.marketoracle.co.uk/Article18111.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-10 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on UK inflation, economy, interest rates and the housing market and he is the author of the NEW Inflation Mega-Trend ebook that can be downloaded for Free. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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