Best of the Week
Most Popular
1. Ray Dalio: This Debt Cycle Will End Soon - John_Mauldin
2.Stock Market Dow Plunge Following Fake US - China Trade War Truce - Nadeem_Walayat
3.UK House Prices 2019 No Deal BrExit 30% Crash Warning! - Nadeem_Walayat
4.What the Oil Short-sellers and OPEC Don’t Know about Peak Shale - Andrew_Butter
5.Stock Market Crashed While the Yield Curve Inverted - Troy_Bombardia
6.More Late-cycle Signs for the Stock Market and What’s Next - Troy_Bombardia
7.US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - Troy_Bombardia
8.TICK TOCK, Counting Down to the Next Recession - James_Quinn
9.How Theresa May Put Britain on the Path Towards BrExit Civil War - Nadeem_Walayat
10.This Is the End of Trump’s Economic Sugar High - Patrick_Watson
Last 7 days
Gold Price – US$700 Or US$7000? - 16th Jan 19
Commodities Are the Right Story for 2019 - 16th Jan 19
Bitcoin Price Wavers - 15th Jan 19
History Shows That “Disruptor Stocks” Will Make You the Most Money in a Bear Market - 15th Jan 19
What Will the Stock Market Do Around Earnings Season - 15th Jan 19
2018-2019 Pop Goes The Debt Bubble - 15th Jan 19
Are Global Stock Markets About To Rally 10 Percent? - 15th Jan 19
Here's something to make you money in 2019 - 15th Jan 19
Theresa May to Lose by Over 200 Votes as Remain MP's Plot Subverting Brexit - 15th Jan 19
Europe is Burning - 14th Jan 19
S&P 500 Bounces Off 2,600, Downward Reversal? - 14th Jan 19
Gold A Rally or a Bull Market? - 14th Jan 19
Gold Stocks, Dollar and Oil Cycle Moves to Profit from in 2019 - 14th Jan 19
How To Profit From The Death Of Las Vegas - 14th Jan 19
Real Reason for Land Rover Crisis is Poor Quality of Build - 14th Jan 19
Stock Market Looking Toppy! - 13th Jan 19
Liquidity, Money Supply, and Insolvency - 13th Jan 19
Top Ten Trends Lead to Gold Price - 13th Jan 19
Silver: A Long Term Perspective - 13th Jan 19
Trump's Impeachment? Watch the Stock Market - 12th Jan 19
Big Silver Move Foreshadowed as Industrial Panic Looms - 12th Jan 19
Gold GDXJ Upside Bests GDX - 12th Jan 19
Devastating Investment Losses Are Coming: What Is Your Advisor Doing About It? - 12th Jan 19
Things to do Before Choosing the Right Credit Card - 12th Jan 19
Japanese Yen Outlook In 2019 - 11th Jan 19
Yield curve suggests that US Recession is near: Trading Setups - 11th Jan 19
How Unrealistic Return Assumptions Are Ruining Your Stocks Portfolio - 10th Jan 19
What’s Next for the US Dollar, Gold, Stocks & Bonds? - 10th Jan 19
America's New Africa Strategy - 10th Jan 19
Gold Mine Production by Country - 10th Jan 19
Gold, Stocks and the Flattening Yield Curve - 10th Jan 19
Silver Price Trend Forecast Target for 2019 - 10th Jan 19
Silver Price Trend Forecast 2019 - 9th Jan 19
Did Strong December Payrolls Push Gold Prices Up? - 8th Jan 19
How to Spot A Tradable Stock Market Top? - 8th Jan 19
Why 90% of Traders Lose - 8th Jan 19
Breadth is Very Strong While Stocks are Surging. What’s Next for Stocks - 8th Jan 19
Half of Investment-Grade Bonds Are Just One Step from Junk Status - 7th Jan 19
Stocks Rallied Again, Still Just an Upward Correction? - 7th Jan 19
Gold Golden Long-Term Opportunity - 7th Jan 19

Market Oracle FREE Newsletter

Bitcoin Analysis and Trend Forecast 2019

UK Inflation Hits New High of CPI 3.7%, RPI 5.3%, Mervyn King Writes Another Excuses Letter

Economics / Inflation May 18, 2010 - 04:14 AM GMT

By: Nadeem_Walayat

Economics

Best Financial Markets Analysis Article UK Inflation has yet again hit a new high of CPI 3.7% up from last months inflation peak of 3.4%, with RPI rocketing even higher to an eye watering 5.3%, a level not seen since 1991. The academic economists were again taken by surprise. The Bank of England's failure in its primary duty of targeting inflation has prompted the Governor Mervyn King to write another letter to this time the new Chancellor George Osbourne that will again state for the fifth time this year that the rise in inflation above 3% was temporary and not to worry, it should come down, eventually (fingers crossed).


However, the real rate of UK inflation as measured by the publically more recognised RPI index has rocketed higher to 5.3% from 4.4% and stripping out the effects of manipulated low interest rates as a consequence of Quantitative Easing and other direct interventions such as the funneling of tax payer cash onto bailed out banks balance sheets leaves the RPIX at 5.4% up from 4.8% which better reflects actual UK consumer price inflation experience and is inline with my own real inflation tracker that stands at 6.5%

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 illustrated by the below graph.

UK Inflation April 2010

Inflation Is a Government Stealth Tax On / Theft From Savers and Workers

Whilst Mervyn King writes another letter full of repetitive worthless excuses as to why the Bank of England cannot do its job. The price is being paid for by ordinary savers and workers who are in effect being robbed by the banks and the government as inflation is a stealth tax on savers and earners that seeks to stealthily destroy the real value of accumulated life time savings and erode the real purchasing power of earnings.

Add to this that savings are TAXED at 20% then savers should be enraged and demonstrating in the streets as to why they are receiving a pittance of interest rates at just 2.5% on even the top ranked savings accounts when inflation as measured by RPI is at 5.3%, and when tax is taken into account savings interest rates would need to be at 6.4% JUST to break even against inflation. So basically the Government, Bank of England in collusion with the bankster's are STEALING more than 50% of the earnings capacity of savings and therefore theft of the real capital value.

Inflation Protection for Ordinary Savers

With RPI at 5.3% the only real effective protection that ordinary savers can seek is in National Savings Index Linked Certificates which pay RPI +1% TAX FREE as mentioned in the Inflation Mega-trend Ebook (Free Download). However protection here is limited to a maximum of £15k per issue per individual.

VAT 20% Inflation Time Bomb

Temporary Inflation ? Will Inflation still be temporary when it soars above 4% CPI and 6% RPI as a consequence of the VAT hike to be announced in the ConDem emergency budget on 22nd of June, as I wrote recently (05 May 2010 - Greece Economic Depression Resulting in INFLATION NOT DEFLATION Surge )

A post UK election VAT hike to 20% from 17.5% is near certain to bring in extra revenue of about £13 billion per year. This will have the effect of both spiking inflation sharply higher and maintaining the ongoing longer-term inflationary mega-trend, therefore I would not be surprised that following the implementation of a VAT tax hike that CPI spikes above 4% and RPI as high as 6%! Which would further discredit the Bank of England's mantra of "Don't Worry Folks its Only Temporary".

Sterling's Inflationary Slump Continues

Sterling at £/$1.44 remains firmly on track to achieve its forecast sub £/$1.40 low (26 Dec 2009 - British Pound GBP Forecast 2010 Targets Drop to Below £/$1.40) now probably within the next 2 weeks, the specific support target lies at £/$ 1.37. The continuing slump is highly inflationary as it forces up the price of imports.

1. That sterling is targeting immediate support at £/$1.57 which implies it may temporarily bounce from there back through £/$1.60 before the eventual break.

2. That a break below £/$1.57 would target a trend to below £/$1.40. On a longer term view, the chart is indicative of trading range between £/$1.57 and £/$1.37, on anticipation of the eventual break of £/$1.57. On average this implies a 10% sterling deprecation against the trend of the preceding 6 months or so.

Interest Rate Rise Around the Corner

The base rate is at 0.5%, whilst CPI is at 3.7%, the base rate should be at least 4.5%. This is as a direct consequence of bailing out the banking sector where money is being effectively stolen from savers and dumped onto the balance sheets of banks, who then recycle it out as bonuses for fictitious profits that only exist because of the forced tax payer and savers bailout.

The Bank of England and the mainstream press continues with the mantra of NO change in UK interest rates this year, this is illustrated by Roger Bootle of the Daily Telegraph's repetitive assertions 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 government 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 as we have witnessed amongst the Eurozone PIGS.

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%.

The Inflation Mega-Trend

The full implications of the unfolding inflation mega-trend including how to protect your wealth are contained within the Inflation Mega-trend ebook (FREE DOWNLOAD), 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.

Source: http://www.marketoracle.co.uk/Article19573.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.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules