UK Inflation CPI Hits 3.7%, Higher than Zimbabwe, Britain Sleep Walking towards Wage Price Spiral
Economics / Inflation Jan 19, 2011 - 01:07 AM GMTBy: Nadeem_Walayat
UK Inflation for December 2010 soared to CPI 3.7% from 3.3% which is set against academic economist expectations of just a few hours earlier of 3.3%. This now puts UK inflation Higher than that of hyperinflation prone Zimbabwe's CPI at 3.2%, thus making a mockery of long standing commentary in the press that it was ridiculous to compare Britain's inflation problems with that of Zimbabwe.
Meanwhile the more recognised measure of Inflation RPI stood at 4.8% and real inflation at 6.46%, as the official inflation indices have been systematically doctored to under report real inflation by successive governments.
The Bank of England MPC members continue with the mantra of temporarily high inflation due to short term factors. One could cut and paste from any inflation statements from MPC members of the past 12 months to hear the same propaganda out of the Bank of England. The question everyone should be asking the BoE is when does temporary high inflation stop being temporary? Originally it was for a couple of months, now it is a year, will high inflation still be temporary a decade from now? For that is how long I expect the Inflation Mega-trend to run.
The gold fish memory broadcast and mainstream media fed by ivory tower academic economists continues to tow the line of temporarily high inflation by focusing on core inflation that excludes, food and energy costs because off course everyone in the UK has stopped feeding or heating themselves, with some even blaming the inflation rise on VAT despite the fact that the VAT hike did not kick in until the 4th of Jan 2011.
UK Inflation Forecast 2011
The updated in depth analysis and forecast for UK inflation for 2011 (17 Jan 2011 - UK Inflation Forecast 2011, Imminent Spike to Above CPI 4%, RPI 6% ) concluded in UK inflation spiking higher to above 4% on release of January 2011 (Mid Feb 2011), and thereafter trend lower towards 3% by the end of 2011 and therefore remaining above the Bank of England's 3% upper limit for the whole of 2011. The Bank of England's most recent Inflation Report forecast UK CPI of 1.7% by the end of 2011, however the BoE had forecast UK CPI of just 1% by the end of 2010 (Feb 2010), which is inline with the Bank of England's permanent mantra of near always imminent deflation so as to better manage the populations inflation expectations in their favour.
UK Inflation of CPI 3.7% is precisely inline with the forecast trend, that should see the UK inflation rate soar to at least 4.2% on release of January data next month.
Bank of England Targeting Nominal GDP Not Inflation.
My ongoing UK Inflation analysis has concluded in the fact that the Bank of England has clearly not been targeting 2% inflation for some time but more likely been targeting a sustained trend to above 2% GDP. Inflation is a tool to achieve this as high real inflation allows the Bank of England to pump out economic growth propaganda to give the illusion of nominal growth when in real-terms the economy is stagnating.
The Inflation Mega-trend
We are living in a decade of high inflation that was covered at length in the 100 page Inflation Mega-trend ebook (FREE DOWNLOAD), that contains 50 pages of analysis and 50 pages of wealth protection strategies.
Western governments such as the UK and USA are printing their way out of their fiscal crisis whilst emerging markets have soaring demand for commodities, goods and services and are now seeking to export their inflation abroad so as to prevent their populations from revolting over high food prices Tunisia style.
The bottom line is that the Bank of England remains paralysed by the fear of another Banking Sector Armageddon, and is continually pressured by the UK government that seeks high inflation as a means of making stealth deep real terms cuts in spending, the deficit and total accumulated debt, thus the British economy is being sleep walked towards a wage price inflation spiral, as people refuse to be lied to anymore on temporary inflation statements and start to demand wage rises in line with inflation, at which point the BoE will again act too little too late.
The British Pound soared against the Dollar on the news that caught many market participants off guard who had been expecting the opposite to transpire. My last in-depth analysis on sterling forecast a volatile trend towards a target of £/$ 1.85 by Mid 2011 as illustrated by the below graph (04 Oct 2010 - British Pound Sterling GBP Currency Trend Forecast into Mid 2011 ) .
My next analysis will seek to come to a trend conclusion for UK interest rates in light of another year of high above target inflation and try to answer the question will interest rates rise during 2011 and if so when and by how much.
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Source and Comments: http://www.marketoracle.co.uk/Article25686.html
By Nadeem Walayat
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Nadeem Walayat has over 24 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
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