Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

UK Inflation Hits New High of CPI 3.7%, RPI 5.3%, Mervyn King Writes Another Excuses Letter

Economics / Inflation May 18, 2010 - 04:14 AM GMT

By: Nadeem_Walayat

Economics

Best Financial Markets Analysis Article UK Inflation has yet again hit a new high of CPI 3.7% up from last months inflation peak of 3.4%, with RPI rocketing even higher to an eye watering 5.3%, a level not seen since 1991. The academic economists were again taken by surprise. The Bank of England's failure in its primary duty of targeting inflation has prompted the Governor Mervyn King to write another letter to this time the new Chancellor George Osbourne that will again state for the fifth time this year that the rise in inflation above 3% was temporary and not to worry, it should come down, eventually (fingers crossed).


However, the real rate of UK inflation as measured by the publically more recognised RPI index has rocketed higher to 5.3% from 4.4% and stripping out the effects of manipulated low interest rates as a consequence of Quantitative Easing and other direct interventions such as the funneling of tax payer cash onto bailed out banks balance sheets leaves the RPIX at 5.4% up from 4.8% which better reflects actual UK consumer price inflation experience and is inline with my own real inflation tracker that stands at 6.5%

UK Inflation Forecast 2010

My analysis since November has been warning of a spike in UK inflation as part of an anticipated inflation mega-trend (18 Nov 2009 - Deflationists Are WRONG, Prepare for the INFLATION Mega-Trend ) that culminated in the forecast of 27th December 2009 (UK CPI Inflation Forecast 2010, Imminent and Sustained Spike Above 3%) as illustrated by the below graph.

UK Inflation April 2010

Inflation Is a Government Stealth Tax On / Theft From Savers and Workers

Whilst Mervyn King writes another letter full of repetitive worthless excuses as to why the Bank of England cannot do its job. The price is being paid for by ordinary savers and workers who are in effect being robbed by the banks and the government as inflation is a stealth tax on savers and earners that seeks to stealthily destroy the real value of accumulated life time savings and erode the real purchasing power of earnings.

Add to this that savings are TAXED at 20% then savers should be enraged and demonstrating in the streets as to why they are receiving a pittance of interest rates at just 2.5% on even the top ranked savings accounts when inflation as measured by RPI is at 5.3%, and when tax is taken into account savings interest rates would need to be at 6.4% JUST to break even against inflation. So basically the Government, Bank of England in collusion with the bankster's are STEALING more than 50% of the earnings capacity of savings and therefore theft of the real capital value.

Inflation Protection for Ordinary Savers

With RPI at 5.3% the only real effective protection that ordinary savers can seek is in National Savings Index Linked Certificates which pay RPI +1% TAX FREE as mentioned in the Inflation Mega-trend Ebook (Free Download). However protection here is limited to a maximum of £15k per issue per individual.

VAT 20% Inflation Time Bomb

Temporary Inflation ? Will Inflation still be temporary when it soars above 4% CPI and 6% RPI as a consequence of the VAT hike to be announced in the ConDem emergency budget on 22nd of June, as I wrote recently (05 May 2010 - Greece Economic Depression Resulting in INFLATION NOT DEFLATION Surge )

A post UK election VAT hike to 20% from 17.5% is near certain to bring in extra revenue of about £13 billion per year. This will have the effect of both spiking inflation sharply higher and maintaining the ongoing longer-term inflationary mega-trend, therefore I would not be surprised that following the implementation of a VAT tax hike that CPI spikes above 4% and RPI as high as 6%! Which would further discredit the Bank of England's mantra of "Don't Worry Folks its Only Temporary".

Sterling's Inflationary Slump Continues

Sterling at £/$1.44 remains firmly on track to achieve its forecast sub £/$1.40 low (26 Dec 2009 - British Pound GBP Forecast 2010 Targets Drop to Below £/$1.40) now probably within the next 2 weeks, the specific support target lies at £/$ 1.37. The continuing slump is highly inflationary as it forces up the price of imports.

1. That sterling is targeting immediate support at £/$1.57 which implies it may temporarily bounce from there back through £/$1.60 before the eventual break.

2. That a break below £/$1.57 would target a trend to below £/$1.40. On a longer term view, the chart is indicative of trading range between £/$1.57 and £/$1.37, on anticipation of the eventual break of £/$1.57. On average this implies a 10% sterling deprecation against the trend of the preceding 6 months or so.

Interest Rate Rise Around the Corner

The base rate is at 0.5%, whilst CPI is at 3.7%, the base rate should be at least 4.5%. This is as a direct consequence of bailing out the banking sector where money is being effectively stolen from savers and dumped onto the balance sheets of banks, who then recycle it out as bonuses for fictitious profits that only exist because of the forced tax payer and savers bailout.

The Bank of England and the mainstream press continues with the mantra of NO change in UK interest rates this year, this is illustrated by Roger Bootle of the Daily Telegraph's repetitive assertions that he expects UK interest rates to stay below 1% for the next 5 years! Meanwhile market interest rates have already risen as the bond markets price in higher inflation and interest rates, with the bond market targeting a year end interest rate of between 4.5% and 5% for UK government bonds which will have severe implications for the financing of Britians huge and growing £1 trillion debt mountain (PSND) with total liabilities extending to more than £3.7 trillion.

My in depth analysis of 13th January (UK Interest Rate Forecast 2010 and 2011 ) concluded with the following forecast, that takes into account that despite the Bank of England wanting to keep interest rates at 0.5%, the market as a consequence of inflation and debt will force the Bank of England to start raising rates as we have witnessed amongst the Eurozone PIGS.

UK Interest Rates Forecast 2010-11: UK interest Rates to Start Rising From Mid 2010 and Continue into end of 2010 to Target 1.75% / 2%, Continue Higher into Mid 2011 to Target 3%.

The Inflation Mega-Trend

The full implications of the unfolding inflation mega-trend including how to protect your wealth are contained within the Inflation Mega-trend ebook (FREE DOWNLOAD), which includes analysis and precise forecasts for:

  • Interest Rates
  • Economy
  • Inflation
  • Gold & Silver
  • Emerging Markets
  • Stock Markets
  • Stock Market Sectors and Stocks, including ETF's
  • Natural Gas
  • Agricultural Commodities
  • House Prices
  • Currencies
  • Crude Oil

The 109 page ebook is being made available for FREE, the only requirement for which is a valid email address.

Source: http://www.marketoracle.co.uk/Article19573.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-10 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 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 500 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

© 2005-2022 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