Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
British Pound Brexit Chaos GBP Trend Forecast - 18th Oct 19
Stocks Don’t Care About Trump Impeachment - 17th Oct 19
Currencies Show A Shift to Safety And Maturity – What Does It Mean? - 17th Oct 19
Stock Market Future Projected Cycles - 17th Oct 19
Weekly SPX & Gold Price Cycle Report - 17th Oct 19
What Makes United Markets Capital Different From Other Online Brokers? - 17th Oct 19
Stock Market Dow Long-term Trend Analysis - 16th Oct 19
This Is Not a Money Printing Press - 16th Oct 19
Online Casino Operator LeoVegas is Optimistic about the Future - 16th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - Video - 16th Oct 19
$100 Silver Has Come And Gone - 16th Oct 19
Stock Market Roll Over Risk to New highs in S&P 500 - 16th Oct 19
10 Best Trading Schools and Courses for Students - 16th Oct 19
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

UK Flawed Inflation Measure Explodes Higher, 3% CPI, 4.2% RPI

Economics / Inflation May 13, 2008 - 07:33 AM GMT

By: Nadeem_Walayat

Economics Best Financial Markets Analysis ArticleThe Consumer Price Index (CPI) leapt higher to 3% in April from 2.5% in March, nearly hitting the Bank of England's letter writing trigger level of 3.1%. This confirms the Market Oracle expectations for a surge in UK inflation as not only the UK but all of the worlds major governments are engaged in the process of rampant money supply growth that is feeding through in higher inflation as too much cash is chasing too few goods. This is most visible in the commodities markets where strong price fundamentals coupled with the Bank of England's money supply printing presses running at full stream as evidenced by the £100 billion of new debt loaned to the banking sector in recent months.


In a recent article I speculated that Gordon Brown may embark on an strategy of throwing money at the voters in an attempt to buy the next election during 2009-2010, that this would be highly inflationary and that the Bank of England may be forced to abandon its 2% inflation target. Today's statistics are an open warning of the consequences of such a strategy, where even an heavily manipulated inflation measure that does not take into account mortgage and council tax costs still manages to evade government targets.

The CPI a Flawed Inflation Measure

The true rate of UK inflation is at least 1% above the RPI measure of 4.2%, therefore at least at 5.2%. There are many flaws in the CPI index which are not only limited to not taking account of many costs such as mortgage interest payments and council tax. But also include deflationary costs such as big item household purchases and clothing which during the current economic downturn and housing bear market are experiencing price cuts due to lack of consumer demand. Therefore the CPI is including falling prices for goods that are basically not being bought, whilst at the same time costs for food and fuel have leapt by more than 20% and are thus being under represented by both the CPI index and RPI Index, which is the primary reason for the loss of confidence in the official statistics that are designed by governments to produce benign inflation statistics in an attempt at controlling wage inflation as a lesson learned from the 1970's and 1980's stagflation era.

The consequences of the under-reporting of real inflation is the huge build up in personal debt that attempts to fill the gap between real inflation and official inflation. However, the credit crisis has ensured that borrowing facilities such as using ones home as an ATM card by the means of equity withdrawals is no longer an option for many consumers, therefore this implies increased deflation in many sectors of the consumer economy going forward, which is expected to bring down the official inflation statistics later in the year.

The Market Oracle forecast as of Nov 07, is for RPI inflation to fall towards 3% by Nov 08. Despite the current surge and given the deflationary forces mentioned above, this 'should' bring the official inflation figures lower towards the forecast date. Also, UK interest rate forecast trend remains on target for rates to hit 4.75% by Sept 08.

The consequences of this surge in headline inflation for Gordon Brown are that the government can expect more rebellion amongst public sector workers as they demand higher pay rise deals in the face of much higher 'real' inflation as the recent teachers demonstrated. (24th April 08 - Teachers Strike as Real Inflation is Far Higher than the CPI)

LIBOR Interbank Interest Rates

At the time of writing an update to the 3 month LIBOR rate is still pending as reports suggest the British Bankers Association is about to revaluate the way it compiles the LIBOR rate due to the current procedures having been discredited as the reporting banks tend to under report the true interbank interest rates so as to under play the impact of the credit crisis. Despite this, the official interbank rates remain at credit crisis extremes as the above graph illustrates, the expectation is that the 3 month GBP LIBOR rate will have jumped on the worse than expected inflation news. For more on problems with the LIBOR rate see Credit Crisis SCOOP- LIBOR Is Now Irrelevant to Derivatives Pricing

By Nadeem Walayat

Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 150 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.

Attention Editors and Publishers! - You have permission to republish THIS article if published in its entirety, including attribution to the author and links back to the http://www.marketoracle.co.uk . Please send an email to republish@marketoracle.co.uk, to include a link to the published article.

Nadeem Walayat Archive

© 2005-2019 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