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Why 95% of Traders Fail

UK BrExit Inflation Forecasts Spike CPI to 3%, RPI 4%

Economics / Inflation Jul 03, 2016 - 07:19 AM GMT

By: Nadeem_Walayat

Economics

Whilst official UK CPI Inflation continues to hug near 0% at a rate of just 0.3% for May 2016, meanwhile RPI which is the closest official measure to real inflation has continued to nudge higher to 1.4%, which are set against the demand adjusted Real UK inflation rate of 1.8%. So deflation? Not really, real UK price Inflation is actually well above 1% and was already trending towards 2% before BrExit.


So what are the future prospects for UK inflation following BrExit?

We'll it's not really that complicated to figure out, for we currently have twin factors that look set to drive UK inflation sharply higher over the next 12 months:

Firstly ,there has been the sharp depreciation in sterling of about 12% which instantly increases the price of imports and therefore should be having an immediate effect on inflation. However, unless the slide in sterling continues then this inflation should prove temporary and start to come out of the inflation indices a year from now.

Secondly there are the longer terms consequences of increased deficit spending stimulus for the UK economy as George Osborne abandons his economic policy of working towards a a budget surplus by 2020 but instead looks set to go on an economy boosting deficit spending spree.

Therefore both of these factors look set to drive UK CPI inflation significantly higher to above CPI 2% and very probably to spike above 3% early 2017, and RPI probably spiking above 4%. However, beyond that unless the surge in inflation triggers significant wage inflation then CPI inflation should then soon start retreat to back below 2% and the trend towards that of the inflation rate of the US at that time a year from now.

So the bottom line is that despite brexit inducing economic weakness, expect UK CPI Inflation to spike towards 3% and RPI to above 4% by early 2017, probably peaking for January 2017 data before trending lower into mid 2017.

Now before you all start panicking you need to realise that in effect nothing has really changed where inflation is concerned for we remain firmly immersed in an exponential inflation mega-trend of which the rise to 4% RPI would just mark the continuation of, where even the great deflation of the great recession of 2008 to 2009 is a mere blip on a long-term inflation trend.

For those who think that the sharp rise in inflation could trigger a rise in interests, then I would like to remind you all that inflation of above 5% of just a few years ago failed to prompt a Bank of England to raise rates due to the bank being terrified that its banking sector brethren would go bust again like 2008. So no rate hikes despite the rise in inflation which means savers are about to get screwed as savings rates FALL whilst inflation RISES.

For what happened on BrExit night see my selection of highlights from 8 hours of BBC coverage of EU Referendum night.

https://youtu.be/l1OrRd6MpjQ

And also see how all hell broke lose once the polls closed Friday as the markets, bookmakers and pollsters ALL got the EU Referendum very badly wrong, as YouGov's 10pm poll convinced all, even Nigel Farage that REMAIN had won triggering a further sharp rally in the FTSE futures and sterling that was sustained until the actual results started to be announced shortly after midnight. Which I covered in this comprehensive video of exactly what happened in the markets during a very volatile trading session.

https://youtu.be/rqK4QwgwjTU

Ensure you are subscribed to my always free newsletter for in-depth analysis of the many future consequences of BrExit.

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2016 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 five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 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

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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