Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20
AMAZON Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 11th Jan 20
Gold Price Reacting to Global Flash Points - 11th Jan 20
Land Rover Discovery Sport 2020 - What You Need to Know Before Buying - 11th Jan 20
Gold Buying Precarious - 11th Jan 20
The Crazy Stock Market Train to Bull Eternity - 11th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

UK Inflation Shocking Rise to 4.4% CPI Confirms Stagflation

Economics / Inflation Aug 12, 2008 - 07:48 AM GMT

By: Nadeem_Walayat

Economics Best Financial Markets Analysis ArticleInflation data for July CPI inflation came in at a truly shocking rate of 4.4%, up 0.6% on June and well beyond our expectations for CPI inflation of 4.1% with the upper worse case scenario of inflation of 4.3%. Whilst at the same time the more recognised RPI measure equally rose to a shocking 5% rate also up 0.6% on June and now matches the base interest rate of 5% as the UK heads for negative real interest rates which has very bearish implications for sterling.


Surging inflation is being fed by soaring fuel and food prices all of which are running at rates in excess of 10%, which in foods case at 13.7%. The recent inflation busting rises in gas and electric prices of approaching 30% is not going to help inflation data in the following months despite a sharp drop in the price of crude oil as yesterdays producer price inflation data confirmed. To add to stagflation worries, yesterday the Water companies announced rises for an average of 3% above the CPI inflation, which is more in recognition that it is a flawed measure of UK inflation rather than seeking to generate extra revenue for investments.

I have considered for a long-time that the true rate of UK inflation is more accurately measured as RPI+1%, (6%) as the official CPI inflation measure tends to exclude highly inflationary components such as taxes and housing costs, additionally the inflation rate is brought down by price cuts of luxury goods that are not being purchased during an economic slowdown / recession by distressed retailers in an attempt to get rid of stock. Whilst strapped for cash consumers are forced to concentrate on the necessities such as food, fuel and housing costs. Therefore the official inflation measure despite jumping to 4.4% is under reporting the true rate of UK inflation as experienced by consumers by up to 2%.

Additionally the failure to report the real rate of inflation results in year on year erosion of consumer purchasing power as the government attempts to link pay to the official CPI inflation rate, which over the last 5 years has resulted in erosion of purchasing power of 13% against just the RPI measure. This has meant consumers have filled the shortfall over recent years by means of consumer debt and equity withdrawals, however the housing bear market has ensured that consumers can no longer use their houses as ATM cards, therefore the reason why the UK is experiencing such a sharp economic slowdown and Labour experiencing a vote meltdown.

The implications for UK interest rates will be discussed in an in depth forecast for UK interest rates for 2009 that will be published later this week, existing and past forecasts are listed below.

2008 - UK interest rates to fall to 5% by September 2008 - Aug 07, Sept 07 (revised to 4.75% - Jan 08)

2007 - UK Interest rates to peak at 5.75% by September 2007 - Dec 07

By Nadeem Walayat
http://www.marketoracle.co.uk

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.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Talk About Debt
12 Aug 08, 11:48
4.4% Inflation

A good post. I agree that both the RPI and CPI are misleading. I believe a rate between 8% and 10% is closer to reality.


Dayahka
12 Aug 08, 21:39
CPI - In US it's 3X yours

In the US the government has been giving out CPI statistics that are criminally fraudulent, saying 3 or 4 or 5 percent when it's quite obvious that it's more like 15 percent, or more.


Peter Davis
29 Aug 08, 07:34
5 yearly inflation rates

A couple of paragraphs that sum everything up wonderfully.

I teach at in independent school where we have an annual rise every September. This has generally been 2.5%. I would like to compare this with annual figures at September over the last 5 years for CPI and RPI, is there an easy way to get hold of these figures, please?


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules