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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Bank of England Quarterly Inflation Propaganda Report Attempts to Mask Stagflation

Economics / Inflation Feb 17, 2011 - 02:50 AM GMT

By: Nadeem_Walayat

Economics

Diamond Rated - Best Financial Markets Analysis ArticleThe Bank of England latest quarterly inflation report continued the trend of pumping out economic propaganda masquerading as forecasts so as to better manage the British populations inflation expectations and prevent a wage price spiral from taking hold by continuing the mantra of temporary factors driving inflation as each month for the past year the Bank of England MPC has danced between differing temporary factors.


Bank of England's Worthless Inflation Forecasts

High UK Inflation that has apparently surprised everyone to the upside for virtually the whole of 2010, by spiking and remaining above 3% from early 2010 illustrates the tendency of the mainstream press to basically regurgitate the views of vested interests that have beaten the drum of always imminent DEFLATION for the whole of 2010 as High inflation was always just temporary and should be ignored by the general population.

To look at the reason why high inflation has been ignored during 2010 we have to look beyond journalists, we have to look beyond academic economists that are paid to follow a school of thought that their pay masters want to push in the media. The place to look for the reason why high Inflation is being ignored is to the very top of the financial pyramid, to the Bank of England.

The connection that the mainstream press has never been able to make is that the Bank of England does NOT make Forecasts. Instead the Bank of England quarterly inflation forecast reports are nothing more than ECONOMIC PROPGANDA, that virtually always converge towards the Bank of England achieving its 2% Inflation target in 2 years time, despite the fact that historical analysis shows that the Bank of England FAILS in achieving its 2% target 96% of the time.

The following are the five quarterly Inflation forecast reports by the Bank of England issued from February 2010 to February 2011 that were instrumental in academic economists and journalists in the mainstream press regurgitating the always temporarily high inflation mantra during 2010 and now into 2011, despite CPI hitting a 3 year high of 4% this month.

Bank of England February 2010 Inflation Report

UK Inflation by Feb 2010 had as I anticipated spiked to above 3% (27 Dec 2009 - UK CPI Inflation Forecast 2010, Imminent and Sustained Spike Above 3%). However the Bank of England's Feb 2010 Inflation Report forecast the spike as being temporary and to imminently resolve in severe disinflation to target a rate of below CPI 1% by December 2010, instead actual UK Inflation for December was 3.7%. The forecast for end 2011 was 1.2%.

Bank of England May 2010 Inflation Report

The May 2010 Inflation report continued with the mantra of temporarily high inflation that would resolve in a rate of about 1.7% by the end of 2010, on the basis of spare capacity in the economy, the blatant flaw in the Bank of England's argument is the fact that much if not all of the spare capacity had been destroyed during the Great Recession of 2008-2009. The forecast for end 2011 was now 1.3%.

Bank of England August 2010 Inflation Report

The mantra of spare capacity, downward pressure on wages to resolve in disinflation continued in the August 2010 Inflation Report. However now with most of 2010 gone, The CPI target for 2010 was revised higher to 3% from 1% (Feb 2010), with CPI for 2011 forecast to resolve to 1.2%, and a sub 2% CPI in 2 years time.

Bank of England November 2010 Inflation Report

The Bank of England's November 2010 Inflation Report (November 2010) forecast UK CPI Inflation to target an early 2011 peak of 3.5% before inflation falls to approx 1.7% by end of 2011, and for inflation to remain well below 2% into the end of 2012, therefore supporting the Bank of England's persistent view that everyone should focus on the Deflation threat and ignore high inflation during early 2011 so as the Bank of England can continue to keep interest rates well below the real rate of inflation for the purpose of funneling savers and tax payers cash onto the balance sheet of the bailed out banks.

Bank of England February 2011 Inflation Report

The most recent inflation report (Feb 2011) now forecasts UK Inflation for end 2011 of approx 2.3% and yet again UK inflation in 2 years time falling to below 2%.

The Bank of England's Inflation reports clearly illustrate the persistent trend as was the case for virtually every preceding year in that the Bank of England ALWAYS FORECASTS SUB 2% INFLATION in 2 YEARS TIME. The inflation graph clearly shows that actual inflation tends to be significantly above the BoE's forecasts and usually by a wide margin of as much as 2%, with the 1 year forecasts in even greater error that supports my view that the Bank of England's Inflation forecasts are nothing more than economic propaganda so as to make the Banks job easier in managing monetary policy, especially as the Bank of England remains terrified of another potential Banking Sector induced Financial Armageddon.

The bottom line is that those at the helm of the economy and in charge of managing inflation / growth by their public statements imply that don't have a clue as to what is actually driving inflation today, instead they make rear view mirror looking statements of yesteryear and extrapolate into the present. The reason why we have high inflation is because the world has 7 billion and growing hungry mouths to feed, then throw into the equation some 300 million newly created middle class Chindian's (China+India), that is growing at an estimated 40 million per year, all with the same appetites as those in the west, then its not just the UK that has an inflation problem but the WHOLE WORLD ! Welcome to the GLOBAL Inflation Mega-Trend.

So I am afraid the apparent fools sat around the Bank of England's MPC table (collecting fat tax payer funded pay cheque's) will only realise this perhaps 2 years down the road when so called temporary high inflation passes its 3rd anniversary. If the Coalition government were serious about managing the economy and solving Britain's economic and inflation crisis then the first step they should take is to fire ALL of the members of the MPC!

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 Forecast 2011

Bank of England Targets 2% Nominal GDP NOT 2% Inflation

So that there is no confusion, the Bank of England has not been targeting 2% CPI Inflation since at least October 2008, instead the Bank of England targets nominal GDP of 2%. The government and the Bank of England use smoke and mirrors phony official inflation statistics to fool the population into accepting that UK inflation is at 4%, something that most of the mainstream press has swallowed hook line and sinker. Despite the fact that the more recognised RPI inflation is running at 5.1% and Real UK Inflation that most people actually experience is running at 6.6%.

As I have been writing for over the past 2 years, the Government and the Bank of England are using high real inflation to erode the value of public debt that now stands at approx £1 trillion and growing at a rate of approx £140 billion per year (29 Jun 2010 - UK ConLib Government to Use INFLATION Stealth Tax to Erode Value of Public Debt ) that phony statistics are utilised to mask non existant real economic growth and attempt to prevent above inflation wage demands thus sparking a wage price spiral that is the real risk at this time given economic stagnation.

To this end high real inflation of 6.6% serves as the means to achieve these goals, coupled with the deflation mantra of paid academic economists and fools in the blogosfear that over 90% of the time just regurgitate what is written by journalists who think that they are economists in the mainstream press that repeatedly print propaganda such as Core inflation is below 3%, when core inflation excludes what is most important to the people of Britain namely food and energy, as though the people of Britain have stopped eating and warming themselves.

UK Stagflation and Deflation Delusion

The bottom line is that no matter what the official economic growth and inflation statistics suggest for economic recovery, the UK is well entrenched for a prolonged period of economic stagflation, the impact of which will be felt to be far more severe than that of the Great Recession of 2008-2009, as general population each year will get poorer and poorer whilst the the Coalition Government and the likes of the Bank of England and other vested interests will continuously pump out phony statistics to perpetuate the illusion of growth and price stability such as through the continuing perpetuation of the threat of non existant deflation that is so vocally heard of in the mainstream press.

Nothing illustrates the deflation delusion more than the following UK CPI Inflation index graph, which shows that the much hyped of Deflation during the Great Recession of 2008-2009 that academic economists still cling to has turned out to be nothing more than a mere inconsequential blip along the path of the Inflation Mega-trend (Free Download).

The Inflation Mega-trend

We are living in a decade of high inflation that was covered at length in the 100 page Inflation Mega-trend ebook (FREE DOWNLOAD), that contains 50 pages of analysis and 50 pages of wealth protection strategies which remain just as valid today as when published.

The fuel duty hike due in April 2011 of 5p per litre on top of rising crude oil price ensures that Britain will experience another so called 'temporary' inflation shock as the fools at the Bank of England look set to blindly continue to brush aside every single inflationary factor that crops up each month as just being temporary whilst the pressure builds to beyond boiling point on the wage price spiral.

When will the Bank of England Pull the Trigger on UK Interest Rates ?

Will be the question that my next in-depth analysis will seek to answer and conclude towards a trend forecast for 2011 (in the next few days). Ensure you are subscribed to my always free newsletter to get this analysis and forecast in your email in box as well as my next ebook on the Real Secrets of Successful Trading which will also be made available for free (Anticipated April 2011).

Source and Comments: http://www.marketoracle.co.uk/Article26358.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-11 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 24 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 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.

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