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UK Inflation Shock and Awe, CPI 4.4%, RPI 5.5%, Real Hits 7.1%!

Economics / Inflation Mar 22, 2011 - 11:26 AM GMT

By: Nadeem_Walayat

Economics

Best Financial Markets Analysis ArticleWhilst David Cameron burns £2 million per day by playing at being Monty in the Libyan desert to distract the British population from the unfolding inflation crisis in the UK which soared shock and awe style by rising in February from CPI 4% to 4.4%, which effectively means that the economy has lost £5 billion on the month (annual -£57 billion), whilst the value of accumulated wealth has been eroded by £12 billion (annual -£154 billion), against which the value of government debt has been eroded by £4 billion (annual -£44 billion) and total UK debt by £22 billion (annual -£242 billion), which illustrates the governments unofficial policy of stealth defaulting on debt by means of high inflation, the price for which is being paid by all workers and savers.


The more widely recognised measure of Inflation RPI stood at 5.5% and real inflation at 7.1%, as the official inflation indices have been systematically doctored to under report real inflation by successive governments for several decades resulting in serious and compounding under reporting of the real rate of inflation as experienced by the British population.

Meanwhile 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. Despite that fact that food and energy are far more relevant to the British population than for instance the price of a 50 inch Plasma Screen. However even core inflation propaganda mantra is being busted as core inflation has also rocketed higher to now stand at 3.4%.

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 to a high of 4.2% early 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 Feb 2011

Continuous Loss of Earnings Purchasing Power

If Britain's working and middle classes were not being squeezed enough by persistently high inflation that is currently eroding purchasing power of earnings at the rate of 3.5% per annum (RPI-Earnings), will also be increasingly hit by a series of tax rises and benefit cuts that collectively look set to erode average purchasing power by between 15% to 25% over the next 2 years, after having already suffered negative earnings for the past 3 years as illustrated by the below graph.

The Inflation Mega-trendThe Inflation Mega-trend

We are living in a decade of high inflation that was covered at length in the January 2010 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.

The bottom line is that the Bank of England remains paralysed by the fear of another banking sector financial armageddon, and is continually pressured by the UK government that seeks high inflation as a means of making stealth deep real terms cuts in public spending, the deficit and total accumulated debt, thus the British economy is being sleep walked towards a wage price inflation spiral, as people will refuse to be lied to anymore by statements of temporary high inflation and start to demand wage rises in line with inflation.

The UK Interest Rates Mega-Trend

The Interest Rate Mega-TrendThe new 85 page Interest Mega-Trend Ebook (FREE DOWNLOAD), concluded in the following trend forecast for UK Interest Rates for 2011, with expectations for rates to hit a minimum of 4.5% by the end of 2014.

UK Interest Rate Forecast 2011

The lengthy analysis has been condensed into an interest rate forecast matrix for 2011:

UK Interest Rate Analysis Matrix

Source and Comments: http://www.marketoracle.co.uk/Article27103.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2011 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 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 focuses on UK inflation, economy, interest rates and housing market. He is the author of two ebook's - The Inflation Mega-Trend(Jan 2010) and The Interest Rate Mega-Trend(Mar 2011) that can be downloaded for Free. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents 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.

Nadeem Walayat Archive

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


Comments

Jas Singh
23 Mar 11, 15:48
Keeping down the Yields

Hi Nadeem

Theoretically, if the banks are buying up GILTS, could the BOE then afford to keep rates ridiculously low?

We all know the BOE/Government/Banks are in each others pockets, so all it would take is for an incentive for the Banks to increasingly buy up the debt, thus keeping yields low.

In the event the market value of these GILTS fell substantially wrecking the Banks balance sheet, no problem, we'll print some money so you can buy more GILTS and push up the market value of your existing holdings ... the cycle then repeats ...

P.s - I'm not entirely convinced they care all that much about rising cost of goods. They are more concerned with maintaining the status quo of a large Government sector, and keeping asset prices up.

Best regards


Nadeem_Walayat
23 Mar 11, 18:48
Gilts Market Blood Bath

The market won't allow them to do so.

The market is driven by profit and if they smell blood they will rip the gilt market apart, the pressure on bond yields is building, to alleviate the pressure short rates need to rise to decrease pressure at the long end else the the market will break the back of the goverment and yields will soar, as has occured MANY times before.

Best

NW


Damian Keegan
24 Mar 11, 10:32
Gilts Market Blood Bath

That's interesting. Does that mean that no matter what the BOE wants to do regarding interest rates they will be forced soon by the market to put them up?


Nadeem_Walayat
24 Mar 11, 11:41
Bankrupt of England

Take a close look at the Bank of England.

What are they actually competant at ?

They will be dragged kicking and screaming to raise interest rates, and unlike manipulating economic statistics, bond markets can react within hours, to force any central banks hand.

The BoE MPC are comatose, they literally don't have a clue what to do so choose to do nothign, until they get wacked on the back of the head by the bond market.


Nasir
26 Mar 11, 16:46
Inflation Mega Trend E-Book

Hi Nadeem, Have just finished reading most of your ebook, a phenomenally well written book, You have accomplished so much in your life, in such a short period of time, and your very humble. You truly are a gifted analyst of the markets, and I feel honoured to be able to just bookmark your site and read your analysis daily which I thoroughly enjoy and find fascinating.

I really look forward to reading your forecasts for the UK housing market and ongoing bull market in stocks, which I believe will eventually hit long term resistance at 14K for the Dow, perhaps even 13K or so, by then most private investors will be lured in after reading the headlines in the paper, and unfortunately it will be far too late, and will again repeat the mistakes of the past.


jonnysingapore
27 Mar 11, 14:16
rising interest rates?

Hi Nadeem.

with a future of inflation, rising interest rates and considerably more borrowing without wage rises, credit looks to be far less available to people until there is a wage spike.

Such a spike is likely to come amidst turbulence. It doesnt seem likely that house prices can stay elevated in such sceanrios, prompting yet more crises? Is that correct?


Nadeem_Walayat
27 Mar 11, 14:45
UK House prices

Hi

My next series of analysis (after stocks) will be on the UK housing market, so without pre-empting the final conclusion, UK house prices in real-terms (after inflation) can't be expected to rise, so people will get asset poorer in at least real terms if not in nominal terms as well.


Barry
28 Mar 11, 09:10
GBP/USD

Hi Nadeem, I would appreciate your view on GBP/USD, especially given the recent positive data in the US (GDP, unemployment, consumer confidence and inflation) and the completely opposite in the UK. Do you still think the Cable will go up to £/$1.85 by mid 2011? Many thanks!


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