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

UK Inflation Falls to CPI 3.2%, Precisely inline with 2010 Forecast

Economics / Inflation Jul 13, 2010 - 04:17 AM GMT

By: Nadeem_Walayat

Economics

Best Financial Markets Analysis ArticleUK inflation for June 2010 registered a small drop from 3.4% to 3.2%, though remaining stubbornly above the Bank of England's upper limit of 3%, thus the BoE Governor, Mervyn King will write yet another letter to repeat that the high rate of inflation is just "temporary", though when does "temporary" high inflation stop being temporary? 6 months? a year? 2 years? as the country sleep walks into stagflation with all of the consequences for wage earners and savers.


Meanwhile the real rate of UK inflation as measured by the publically more recognised RPI index stood at 5%, down marginally from 5.1% the month before, and after stripping out the effects of manipulated low interest rates as a consequence of Quantitative Easing and other direct interventions to support the Housing Market such as the funneling of tax payer cash onto bailed out bank balance sheets leaves the RPIX also marginally lower at 5% which better reflects actual UK consumer price inflation experience and is set against my own real UK inflation tracker that stands at 6.2%.

UK Inflation Forecast 2010

UK Inflation of CPI at 3.2% for June 2010 is exactly in line with my trend forecast for 2010 as of December 2009 that projected June inflation data of 3.2%. 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%) and the Inflation Mega-trend Ebook of January 2010 (FREE DOWNLOAD) as illustrated by the below graph.

UK Inflation May 2010

Bank of England's Worthless Inflation Forecasts

According to the Bank of England's forecast for UK inflation of just over a year ago (Feb 2009) - June 2010 CPI Inflation should by now be at 0.9%, instead of the actual rate of 3.2%. Whilst the more recent Bank of England Inflation Report (Feb 2010) of barely 4 months ago forecast that UK inflation by June should have fallen to about 1.8%, instead it is at 3.2% (see graph).

Therefore how credible are the Bank of England's persistent claims that the ongoing rise in UK inflation is "temporary" and that it is forecast to fall to UNDER 1% by the end of 2010 (Feb 2010) ?

The Bank of England has a track record of being wrong 96% of the time in its inflation forecasts of where inflation will actually be in 2 years time, as the usual mantra is for UK inflation to magically converge to 2% in 2 years time, much as the graph on the right concludes towards.

VAT 20% Inflation Surge Time Bomb

The ticking inflation surge time bomb has been primed to go off during early 2011 as a consequence of the ConDem governments emergency budget VAT hike from 17.5% to 20% that will likely result in an surge in Inflation to above 4% CPI and 6% RPI as I wrote of during the election campaign (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".

I wonder how many ordinary UK citizens will believe the Bank of England's statements of temporary inflation when they see Inflation of CPI 4%+ and RPI 6% a year on. Will they still be willing to accept wage hikes of 2% or even freezes, or will they start to demand ever higher wage rises to match surging inflation and hence feed the the wage price spiral.

Therefore my expectations are for a continuation of the high UK inflationary trend well into 2011, with an in depth forecast for 2011 to follow before the end of 2010 that will aim to replicate the accuracy of this years forecast.

UK ConLib Government to Use INFLATION Stealth Tax to Erode Value of Public Debt

Whilst the ConLib governments emergency budget deficit reduction measures represent an improvement under that of the Labour government targets that would have resulted in extra borrowing of £478 billion over the next 4 years if the Labour government managed to stick to its targets.

However the ConLib government will still expand total debt by £414 billion over the next 4 years, and £471 billion over the next 6 years to reach £1,242 billion, so hardly an earth shattering improvement. Therefore the ConLib governments and Bank of England's objective remains to continue with the mantra of temporary inflation whilst all the time using inflation as one of its primary tools to stealthily erode the value of the annual deficit and total accumulated debt by stealthily taxing earnings and savings to ensure annual interest payments that are set to grow to £70 billion remain manageable in real terms.

Inflation as illustrated at length in the INFLATION MEGA-TREND EBOOK (Free Download), is a powerful stealth tax that the government will use to first stabilise and then reduce the debt in terms of percentage of GDP as the below graph illustrates that despite total debt increasing by 50% to £1.24trillion, the ConLib government aims to stabilise the debt at about 70% of GDP and then target a trend lower to about 65% of GDP by 2016. However my higher deficit projections imply that actual Debt % will start to deviate from the ConLib expectations during 2014.

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

Whilst Mervyn King writes another letter full of repetitive 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% on even the top ranked savings accounts when inflation as measured by RPI is at 5%, and when tax is taken into account savings interest rates would need to be at 6% JUST to break even against inflation. So basically the Government, Bank of England in collusion with the bankster's are STEALING more than 60% of the earnings capacity of savings and therefore theft of the real capital value.

Readers don't be under any illusion, the Bank of England has lost control of inflation as the normal response to high inflation is to raise interest rates, instead of a UK base rate of 0.5% it should be at least at 3.5%. The reason why rates remain at 0.5% is as part of the process of transferring bankrupt bank debts off the bank balance sheets and onto the tax payers, that's you the tax payer who is picking up the tab by taking on the liabilities and debts of the bankrupt banking sector, which STILL more or less remains BANKRUPT, that only survives as a consequence of government support by means printing money and keeping interest rates at 0.5%. This means that savers and wage earners are being forced to a. subsidise the bankrupt banking sector and b. finance the governments budget deficit and total growing debt mountain by means of the stealth tax called INFLATION, which seeks to eat away the value of the total debt, as elaborated at length in the Inflation Mega-Trend Ebook (FREE DOWNLOAD)

Delusional Deflationist Continue to See Non Existant Deflation

If you read much of the mainstream press that tends to buy the Bank of England's monthly litany of excuses such as the mantra of spare capacity most of which was destroyed during the recession, you may get the impression that there is a tug of war going on between inflation and deflation with the outcome yet to be decided. This despite the fact that CPI inflation is at 3.2% and RPI at 5%, i.e. some distance from zero.

The reality of the situation remains in that the worlds economies swim in an ocean of inflation with the occasional ripples of deflation on its surface as the following graphs illustrate that the pseudo economists with their persistence deflation clearly only see the deflationary ripples whilst missing the deep inflationary ocean.

The above CPI and RPI Index graphs clearly show there IS NO DEFLATION! As Deflation in our money printing fiat currency bankster run fraudulent financial system can only exist fleetingly as a mere ripple on the surface that is utilised by the vested interests in the Inflation Mega-trend to ensure further inflationary money printing policies are always enacted by governments so as to STEALTHLY Steal the wealth and earnings purchasing power of ordinary citizens who are gradually FORCED into becoming debt slaves in an attempt to maintain falling standards of living.

Sterling Bounce No Impact on Inflation

One of the excuses espoused by academic economists after the fact was that the fall in sterling was to blame for the rise in inflation. However following the election sterling has dragged itself off of the floor of of near £/$1.40 to above £/$1.50 without having any impact on inflation which suggests that UK inflation is mostly due to domestic reasons, which implies strong underlying inflationary forces at work.

Protect Your Savings and Wealth

The Inflation Mega-Trend Ebook (FREE DOWNLOAD) covers at length the whole on going theft of value of savings and wage purchasing power, but more importantly contains 50 pages of what people can do to protect their wealth.

If you keep your money in the bank or building society then you are letting the bankster's gradually steal the value of your savings as the rate of return to beat CPI inflation and the 20% savings tax will need to be about 4%, instead the banking sector typically offers depositors less than 2% for instant access accounts and less than 2.75% for 1 year fixes. The easiest and safest way for investors to protect themselves immediately is ironically a government backed product, the National Savings Index Linked certificates that pay 1%+ RPI Inflation that's 1% Plus 5% if inflation remains at 5% for the next 12 months. The actual formula is based on the RPI indices at anniversary against where it stood at the time of Purchase.

More advanced mechanisms for protecting your wealth such as investing in safe big cap cap dividend paying stocks, commodities such as oil and gold and silver and wheat which is particularly cheap at the moment, and other fiat currencies that are expected to appreciate in the long-run such as the Chinese Yuan, Aussie Dollar are covered at length in the Inflation Mega-Trend Ebook.

Bottom Line - You NEED to protect your wealth from the government and the Bank of England that will seek to steal the value of your wealth and earnings by means of INFLATION. The government has no choice but to print money and monetize debt. There is no other way out, yes there will be the occasional deflationary ripples but the worlds economies swim in an ocean of inflation as evidenced by the RPI and CPI Inflation indices which ensure the Inflation Mega-Trend will run not for months, or even years but decades.

Comments and Source: http://www.marketoracle.co.uk/Article21054.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.


Comments

Mark
14 Jul 10, 07:19
Deflation

Deflation occured in Japan and in the 1930's under similar conditions. Logically a dept fuelled economy with low inflation would become deflationary if lending is restricted, or am I missing something!


Nadeem_Walayat
14 Jul 10, 07:59
Theorectical Models

There is a difference between theory and what actually happens, which is why the mainstream press and academic economists have been wrong for the past 10 years.

And Japan has not had deflation, its had stable / flat prices.


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