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

Bank of England Prepares to Print Money Despite High Inflation at CPI 3.1%

Economics / Inflation Oct 13, 2010 - 03:48 AM GMT

By: Nadeem_Walayat

Economics

Best Financial Markets Analysis ArticleUK Inflation for September 2010 was unchanged at CPI 3.1%, remaining stubbornly above the Bank of England's upper limit of 3% and target of 2%, despite virtually 10 months of worthless mantra from the BoE Governor that high inflation was ALWAYS just temporary and imminently expected to fall back to below the 2% target. The more recognised RPI (real inflation) measure dipped marginally from 4.7% from 4.6% and which compares against average pay rises of 2% which illustrates the squeeze that ordinary people are experiencing especially as taxes rise and Government spending is cut.


UK Inflation Forecast 2010

UK CPI Inflation at 3.1% for September 2010 is virtually precisely in line with my trend forecast for 2010 as of December 2009 that projected CPI above 3% inflation for most of 2010 and specifically CPI inflation of 3.2% for September 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%) and the Inflation Mega-trend Ebook of January 2010 (FREE DOWNLOAD) as illustrated by the below graph.

UK Inflation August 2010

Bank of England More Money Printing

Vested interests such as the British Chambers of Commerce (BCC), not content with 0.5% interest rates for over 18 months, now want the Bank of England to keep printing money so that even higher inflation can artificially inflate corporate earnings so as to give the illusion of growth i.e. by raising prices, the cost for which is paid by ordinary tax payers and retirees on fixed earnings that cannot inflate their earnings to match real inflation. The Bank of England MPC members (Adam Posen) have made noises that they will resume Quantitative Easing following the impact of severe spending cuts to be announced on 21st October, the consequences of which will be to continue to feed the Inflation Megatrend for the whole of 2011.

The likes of the BCC foolishly seek short-term gains that would be more than countered by a higher price paid later on, as the BoE is forced to jack up interest rates to counter far higher inflation as a consequence of BoE printing money at a time when inflation was already high, and not forgetting the VAT inflation time bomb about to detonate in January 2011.

Inflation Stealth Theft

At the end of the day inflation is a stealth tax that is being used by the Government and the Bank of England to a. Reduce the budget deficit (eroding purchasing power), and b. funneling tax payers and savers cash onto the balance sheets of the bailed out banks as savers are in receipt of interest net of tax at half the CPI rate and similarly average workers pay rise is near half the CPI and far below the RPI inflation measure of 4.6%.

The Coalition government has made many announcements that it intends to accelerate the move to replace the RPI inflation measure with the far lower CPI measure for indexation purposes such as for social security benefits, pay and other annual cost of living increases so as to STEAL an estimated extra £10 billion per annum from the population, which is on top of £30 billion of annual inflation stealth theft already announced to date. Whilst real inflation is already raging at above 6%, which illustrates how successful successive governments have been in using smoke and mirrors to mask the theft by means of REAL inflation that never matches the official bogus inflation statistics, which where the CPI is concerned is at least half the rate of the actual inflation experience of most people.

Bogus inflation statistics are never more clearly illustrated then by the fact that academic economists in the pay of vested interests or journalists that think they are economists write reams of nonsense on why ones focus should be on the core inflation rate (which is still pretty high at 2.7%), rather than CPI or RPI, this FAILS to comprehend that the reason core inflation tends to be lower is because it EXCLUDES FOOD and ENERGY costs which are SOARING, hence financially squeezed workers after feeding and warming themselves do not have much extra left over to go and buy new flat screen tvs or other luxury components of core inflation!

Bank of England's Worthless Inflation Forecasts

According to the Bank of England's forecast for UK inflation as of Feb 2010, CPI inflation by September should have fallen to about 1.4%, instead it is at 3.1% (see graph), with the forecast for inflation to fall to below 1% by the end of 2010 and magically always converge towards 2% in 2 years time which fails to occur 96% of the time.

The Bank of England relies on the gold fish memory of the mainstream press as the BoE seeks to revise inflation forecasts every quarter to push forward 2% to two years forward, which is nearly always preceded by a trend to below 2% one year forward. But as mentioned above the quarterly inflation reports are just propaganda aimed at psychologically managing the populations expectations on the economy and inflation in the direction where the BoE wants it to be as the alternative would be to make the BoE's job harder.

More here - The Real Reason for Bank of England's Worthless CPI Inflation Forecasts

The big question is when will UK interest rates rise in the face of persistently high inflation which my forthcoming in depth analysis will seek to answer, ensure you are subscribed to my ALWAYS FREE Newsletter to receive this in your email in box.

Comments and Source: http://www.marketoracle.co.uk/Article23460.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 600 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.

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


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