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UK Inflation Mega-trend Second Anniversary Despite Continuing Delusional Deflation Propaganda

Economics / Inflation Jan 19, 2012 - 12:37 AM GMT

By: Nadeem_Walayat


Diamond Rated - Best Financial Markets Analysis ArticleUK CPI inflation ended 2011 at 4.2% (December) coming down sharply from a peak of 5.2% (September) that despite the mainstream presses continuing academic backed falling inflation / deflation risk warnings remains at more than DOUBLE the Bank of England's 2% target that continues to make a mockery of the central bank whose primary remit is supposedly price stability. CPI 3% was supposed to have been the maximum level a break above which was supposed to trigger a series of panic measures to bring inflation under control, instead of which the Bank of England has instead opted to print money that to date officially totals £275 billion of electronic money printing that the fractional reserve banking system will eventually leverage to over £1 trillion for the primary objective for the monetization of government debt as warned of now 2 years ago in the Inflation Mega-Trend Ebook (Free Download).

UK debt continues to be monetized at the approx rate of 15% per annum, with only the deflation fools and vested interest academic economists unable to realise the highly inflationary consequences of governments monetizing their own debt. For the risk is not just what we witnessed during 2011, but the risks are of loss of confidence in fiat currency amidst a panic that would fast accelerate towards hyperinflation.

UK Inflation Forecast 2011

UK inflation ending the year at 4.2% is set against my January 2011 forecast (17 Jan 2011 - UK Inflation Forecast 2011, Imminent Spike to Above CPI 4%, RPI 6% ) that expected Inflation to remain above Bank of England's 3% upper limit for the whole of 2011 ending the year at 3.2%, which is set against the Bank of England's Feb 2011 Inflation Report that expected CPI of just 1.7% by the end of 2011.

However, actual inflation as experienced by most people in Britain currently stands at a far higher rate of 6%, which explains why your weekly groceries bill is inflating at near twice the rate of official inflation indices that have been manipulated by successive governments to under-report the true rate of inflation.

Britains Inflationary Depression

Whilst the inflation rate looks set to continue correcting lower into early 2012 as the UK economy starts to sputter in response to the Euro-zone in meltdown, with most of its member countries being consumed by debt deflationary black holes as they are unable to print money and devalue against Germany that further lacks any real means for internal transfer payments. However the UK still remains in an ongoing Inflationary Depression.

Contrary to the Bank of England's economic propaganda of high inflation always being just temporary (for over 2 years now), there is nothing surprising about persistently high inflation as I warned of 2 years ago in the Inflation Mega-trend ebook (FREE DOWNLOAD), high inflation is a deliberate and inevitable policy of the stealth default on UK public and private debt. The trend of high inflation is likely to persist for the whole decade because the government continues to accumulate new debt at the rate of at least £120 billion per year which remains on the SAME debt accumulation trajectory as the last Labour government despite the cuts and austerity propaganda.

Bank of England's Inflation Economic Propaganda

High UK Inflation that 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 and much of 2011 as high inflation was always just temporary and should be ignored by the general population, which is the precise message still being bleated out in the mainstream press today.

To look at the reason why high inflation is being ignored 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, 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 PROPAGANDA, 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 97% of the time.

The following are the last 8 quarterly Inflation forecast reports by the Bank of England issued from February 2010 to November 2011 that were instrumental in academic economists and journalists in the mainstream press regurgitating the always temporarily high inflation mantra of the past 2 years, despite CPI spiking to 5.2% and still remaining at more than double the 2% Target.

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 by the end 2011 was for just 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, since Britain did not have much of a manufacturing base to start with. The forecast for end 2011 was now revised to 1.3%.

Bank of England August 2010 Inflation Report

The mantra of spare capacity placing 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 wealth and tax payers cash onto the balance sheet of the bailed out bankrupt banks.

Bank of England February 2011 Inflation Report

The Feb inflation report (Feb 2011) revised the forecast for UK Inflation for end 2011 to approx 2.3% and yet again UK inflation in 2 years time would as if by margin fall to below 2% and therefore the real threat remained DEFLATION.

Bank of England May 2011 Inflation Report

The May inflation report (May 2011) revised UK Inflation for end 2011 to 4%, compare that against a range of between 1.2% and 1.7% pumped out as deflation mantra during the whole of 2010.

Bank of England August 2011 Inflation Report

The August 2011 Inflation amidst a panic of uncertainty at the Bank of England in recognition of not having a clue now forecast a spike in CPI to end 2011 at 5.2%, which is set against the Bank of England's propaganda that it would fall to below 2%. That 5.2% spike came in the following month (September 2011) which was set against the BoE forecast of barely 2 months earlier suggesting a 4.5% inflation rate for September.

Bank of England November 2011 Inflation Report

The most recent Inflation report of November 2011 forecasts Inflation to fall sharply over 2012, to end the year at approx 1.1% due to impacts from VAT, falling energy prices and labour market pressures, and at approx 1.3% by the end of 2013. A reminder of where the Bank of England forecast CPI Inflation would be by now a year ago 1.7%, and 2 years ago 1.2%.

Britain's Savers and Workers Continue to be Punished for the Bankster Crimes

The British population continues to be fooled by economic smoke and mirrors propaganda into bailing out the bankster's at unlimited liability so that no bankster generated bad debts have been defaulted upon, every bond issued by the bankster's that they continue to collect bonuses upon is still being honoured by the tax payers of Britain at huge personal expense that will continue to be born for many years if not decades.

The primary mechanism for this stealth theft of wealth is by means of high real inflation induced loss of purchasing power of earnings that has been effectively masked from the public in the UK who are increasingly experiencing the real pain of not being able to maintain their standards of living without triggering angry public demonstrations compared to the near revolution that is taking place in Greece in the face of actual pay cuts, as Greece being part of the Euro-zone means it's government is unable to print money and use the inflation smoke and mirrors illusion to steal its populations wealth, but rather it is ultimately for German tax payers to finance the Greece state with loans that will never be repaid even in nominal terms let along real terms. Off course this is out of self interest to preserve and protect their own bankster's that rule Germany with nearly as iron a fist as their last dictator.

However theft of wealth by means of inflation is nothing new because governments printing money to buy votes is a perpetual policy of ALL democracies as the below graph illustrates the steady theft of purchasing power of sterling on the RPI inflation measure shows that over the past 24 years near 60% of the purchasing power of sterling has been stolen and funneled to those that control the printing of money, namely the banking elite.

Therefore the workers of Britain are in the exact same boat as the workers of Greece, it's just that for the Greeks the theft is obvious as they actually see their pay being cut, whereas in Britain the theft is executed stealthily, slyly by the masters of economic propaganda with chief propagandists such as Mervyn King uttering soothing phrases every now and then of temporarily high inflation that the mainstream press and academic economists (vested interests) lap up and regurgitate at length so as to manage the populations inflation expectations.

Savers experience the stealth theft of wealth where even the best savings accounts paying 3% are still resulting in a loss of life time accumulated wealth to tune of at least 3% per year (RPI and after basic income tax). For savers to just break even they would need to be in receipt of a savings rate of at least 6.

My next serious of in-depth analysis will seek to formulate detailed Inflation trend expectations for at least 2012 and more likely into 2015. That seeks to answer key questions such as how can we have inflation if wages are falling in real terms ?

To get this analysis and concluding detailed forecasts in your email in box, ensure you are subscribed to my always free newsletter.

Source and Comments:

By Nadeem Walayat

Copyright © 2005-2012 (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 three ebook's - The Inflation Mega-Trend; The Interest Rate Mega-Trend and The Stocks Stealth Bull Market Update 2011 that can be downloaded for Free.

Stocks Stealth Bull Market Ebook DownloadThe Interest Rate Mega-Trend Ebook DownloadThe Inflation Mega-Trend Ebook Download

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents 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.

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 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


19 Jan 12, 08:16


I know you keep being asked for stock market forecasts, but can you at least give us a clue as to where you think the market is going in the short term.

A number of commodity stocks are at break out levels. Is this another false dawn, or something more significant?



19 Jan 12, 18:46
Could we still be in a deflation?

Nadeem, I've recently drawn an S&P chart adjusted for inflation from 1980 to 2012 and discovered a pretty amazing picture: since 2000 the index was falling quite rapidly in a perfect channel (I've never seen such perfect four touches of the channel lines by the price on monthly charts!). Right now we are approaching the upper line of this channel, we'll get there around first half of 2013, after which, if the channel holds, the drop in real S&P price will be staggering. Well, it will be the same in amplitude as 2000-2002, which is exactly the same as 2007-2009 (draw this chart, if you haven't seen it). Meanwhile, nominal prices could stay flat or even rise in a hyperinflationary scenario, but that won't be important, when your purchasing power is falling.

Can it be said that we are indeed in a deflation? Would it be a proper definition of deflation, i.e. when real price is falling, not the nominal? Would you please share your thoughts about this?

PS. I'm reading your articles with great interest, they make me think and do all kinds of interesting research.

20 Jan 12, 16:48
Stocks and Mega-trends


My current focus is on fine tuning the mega-trends.

Will look at markets such as stocks after that is done.

Hi Astan

Your stating aspects of the Inflation Mega-trend which is why prices cannot fall in the long-run and indices such as the Dow are in an long-term inflationary exponential growth spiral, which is why the deflation fools are delusional if they expect prices to fall as a consquence of debt deleveraging deflation which is a red herring as I warned off in November 2009.

Deflaiton definition is simple - falling general prices in an economy, which means CPI or RPI, everything else is leveraged to Inflation.

The deflation fools play around with the facts such as Mike Shedlock stating that falling prices are not necessary for deflation, what a nonsensical statement to try and get out of the fact that these fools do not have a clue which is why they miss WHOLE bull and bear markets !

They keep blowing like reeds in the wind, once minute its fallign CPI, no wait not that because CPI is not falling, lets pick errr eemmm, the baltic dry dock index while its falling, no can't do that anymore cos its rising now, what about copper ? No thats up, what about US housing ? Yes thats still weak thats what we will pick today to explain were in deflation - FOOLS !



Listen to the deflation fools and LOSE all your wealth, which is what you would have done shorting stocks for the past 2.5 years !

I better stop here else I will just rant on....

My goal is not to be right on inflation or anything else, its to preserve and grow my wealth and fundemental to everything I know is that we are in for a decade of above trend inflation! which the past 2 years action is confirming, with all of the consquences for asset prices.



21 Jan 12, 07:24
UK Housing

Hello Nadeem,

I eagerly look forward to reading your articles but I'm still waiting for your analysis on UK housing.

My positing is having £60,000 to buy a house but will have to fund £120,000 of it through long term borrowing (10 years at 4%) To me this seems a low risk option as the fear of mega inflation and bankrupting banks. I'd rather have some some in a solid asset and dept to be inflated away.

On a previous post you stated don't get into dept during a dept crisis, but surly dept is good in a high inflation environment. In Weimar Germany people paid of there mortgages with postage stamps during the period of hyper inflation.

I'd appreciate your opinion on the above.

22 Jan 12, 05:30
UK Housing market


All of my analysis is accumulative, each builds on the other, if I skip answering questions then that decreases probability of accuracy.

Debt - We are in a debt crisis, you could lose your property if things go pair shaped, so buying with debt is taking a big risk especially in a debt crisis.

Housing - Yes housing is leveraged to real inflation - remember that real inflaiton aproximates about 2% above official CPI.



Hristo Botev
22 Jan 12, 15:26
Country in EU with possible deflation

Hi, Nadeem,

I live in a very funny country-Bulgaria, the most hated destination for British property investors.We are in EU, outside of Euro-zone, but our currency is pegged to Euro(if I am using wrong word-the exchange rate is fixed by law and never changes).

In short-our economy is in similar condition as Greek one, but public debt is pretty low-about 16 percent of GDP.Private one is big-about 110 % of GDP, mainly result of property baloon, which is already deflating with about 8-9 % p.a.

I would appreciate Your opinion on the question is it possible in such a conditions we to experience proper deflation and after that-some banks to go belly up, bank run, unleashed currency and 'perfect storm'?

The current account of the country is negative and has already been like that for 3 years, the biggest banks are Greek, Italian and Austrian and are withdrawing money out of the country with rate about 1 billion Euro per year, GDP of the country is about 20 Billion Euro.

I understand, that this question is outside of Your usual articles, but here our government use 'smoke and mirrors' strategy all the time at great scale and it is very hard for the people to understand what is coming in the near future.

In the same time You have a lots of readers in Bulgaria and they are waiting for Your opinion!Thank You in advance!


23 Jan 12, 00:04
Hungary - What to Expect


Does not matter whats stupulated in law, this is what Hungary wil do -

devalue currency

Print money

default on debt.

Don't be fooled by government Deflation smoke and mirrors, High Inflation WILL come to hungary more so given the fact that its not in the euro.

Protect your wealth accordingly, cos no ones going to come and bail you out Greece style.



Hristo Botev
23 Jan 12, 07:35

It is different country -Bulgaria, but it probably does not really matter.

Most of the people, which still have some money keep them in GBP , Euros or Swiss franks outside of the banks.

I do the same and I am trying to buy some business property without debt for my own small business.Providing that we do not have inflation linked bonds or really liquid gold or share market this looks for me as best option.If I fail for some reason-I will be back in good old UK.

All the best!

23 Jan 12, 09:47

Nadeem, just wanted to thank you for taking time and responding to me personally. I really enjoy and appreciate your work!

PS. I've made money going long based on your recommendations a few times since 2010, but lost money when went against them...

15 Feb 12, 06:58


With half of Q1 2012 already over, we eagerly anticipate your next update on the inflation megatrend and impact on stocks. Your recent silence has us intrigued.


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