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 Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20
Gold Mining Stocks Fundamentals - 18th May 20
Why the Largest Cyberattack in History Will Happen Within Six Months - 18th May 20
New AMD Ryzen 4900x and 4950x Zen3 4th Gen Processors Clock Speed and Cores Specs - 18th May 20
Learn How to Play the Violin, Kids Activities and Learning During Lockdown - 18th May 20
The Great Economy Reopening Gamble - 17th May 20
Powell Sends a Message With Love for Gold - 17th May 20
An Economic Renaissance Emerges – Stock Market Look Out Below - 17th May 20
Learn more about the UK Casino Self-exclusion - 17th May 20
Will Stocks Lead the Way Lower for Gold Miners? - 15th May 20
Are Small-Cap Stocks (Russell 2k) Headed For A Double Dip? - 15th May 20
Coronavirus Will Wipe Out These Three Industries for Good - 15th May 20
Gold and Silver: As We Go from Deflation to Hyperinflation - 15th May 20
Silver's Massive Undervaluation Relative to Gold Makes It Irresistible - 14th May 20
Bitcoin Halving Passes with no Fanfare, but Smart Money is Accumulating - 14th May 20
Will Job Market from Hell Support Gold? - 14th May 20
The Tragedy Of Missed Covid-19 Opportunities - 14th May 20
Worst Jobs Report In US Economic History - And The Stock Market Continues To Rally - 14th May 20
NASDAQ Sets Up A Massive Head and Shoulders Pattern - 14th May 20
Perceiving Coronavirus as a Disruptive Technology - 13th May 20
Why Financial Trouble Brews on the "Home" Front - 13th May 20
Stock Market ‘Sentiment Event’ Rally Grinds On - 13th May 20
The Fed Now Owns All Markets - 13th May 20
Fruit Trees Gardening to Beat Coronavirus Blues - , Apple, Cherry, Kiwi, Pears, Plums, Grapes, Bananas May 2020 - 13th May 20
Gold Investors Shouldn’t Be Losing Focus - 12th May 20
S&P 500 Bulls Again At Resistance – Now What - 12th May 20
US Fourth Turning Accelerating Towards Debt Climax - 12th May 20
Gold in the year of the Coronavirus Pandemic - 12th May 20
Hi Ho Silver : Away! - 11th May 20
The Great Stock Market Disconnect - 11th May 20
The Big Move In Silver May Be Right Now - 11th May 20
Finding Winners in the Wreckage of the Coronavirus Economic Downturn - 11th May 20
Brave New Corona World – A heated Debate between Steven Pinker and Aldous Huxley - 11th May 20
Coronavirus Catastrophe Stock Market Implications - 10th May 20
US Stock Prices are Ignoring the Economic Meltdown, Wait for it… - 10th May 20
Forecasting Crude Oil: This Method Has Been the Undefeated Champion Since 1998 - 10th May 20
Coronapocalypse and Gold - How High Is Too High for the Yellow Metal? - 10th May 20
The Illusion of Owning Gold - 10th May 20 - Nick_Barisheff
The Financial Crisis Will Continue To Lurk Even If the Lockdown Gets Eased - 10th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

UK Good Deflation Election Boost for Conservatives But Inflation Mega-trend Remains Exponential

Economics / Inflation Feb 18, 2015 - 02:53 PM GMT

By: Nadeem_Walayat

Economics

The latest UK official CPI inflation data is at an historic low rate of just 0.3% which prompted the mainstream financial press and academic economists to go overboard on commentary on the dangers of deflation, much as the Bank of England tends to propagandise in its quarterly inflation reports of why Inflation needs to be at or above 2% CPI. The press continues to warn of outright deflation later this year as CPI is expected to nudge below 0% and how this is bad for the economy as people put of consuming today in the anticipation of lower prices tomorrow.


However, firstly the average CPI inflation rate over the past 12 months is 1.35% and the average for the more recognised closer to reality RPI inflation rates 12 month average is 2.25%, so no, the UK does NOT facing deflation for the academics and journalists fail to realise the difference between good deflation and bad deflation. Good deflation is when prices fall as a result of lower material costs and increases in worker productivity as a consequence of the exponential trend in technological advancement i.e. the internet.

Whilst bad deflation is as a consequence of a contraction in economic activity i.e. a recession that translates into unemployment and falling wages, where the most recent data suggests is actually picking up with wages now rising at 2% per annum, their fastest pace for many years and above both official inflation indices.

Another major gaping hole in the understanding of the deflation / inflation debate is that there are literally £550 billion reasons why there is no real deflation nor will there be deflation, and that is the amount of debt that the Coalition government will have printed over its term in office, debt that will NEVER BE REPAID but rolled over in perpetuity, even the interest due is paid with more printed debt. Which is the primary reason why the UK will never experience sustained deflation because ALL government print debt to buy votes which causes inflation as illustrated by the ConLib's deficit forecast -

29th June 2010 - UK ConLib Government to Use INFLATION Stealth Tax to Erode Value of Public Debt

Therefore it is difficult to see how the government will be able to achieve its stated budget reduction target of getting the annual deficit down to just £20 billion by 2015-16. Whilst the government is expected to trend close to target for the next 3 years, however thereafter the governments (OFBR) and my deficit forecasts diverge as the coalition governments primary focus will be towards getting re-elected in May 2015. In all likelihood this means that total debt will be over £100 billion higher than that which the government is forecasting as illustrated by the annual budget deficits forecast graph below-

Whilst the ConLib's deficit reduction targets represent an improvement under the Labour governments target that would have resulted in extra borrowing of £478 billion over the next 4 years if the Labour government managed to stick to its targets. However the ConLib government will still expand total debt by £414 billion over the next 4 years, and £471 billion over the next 6 years to reach £1,242 billion, so hardly an earth shattering improvement.

The following updated graph for UK public sector net debt clearly shows that the Coalition government is on a trajectory for total additional debt of £130 billion bringing the total debt printed to over £500 billion. I say printed rather than borrowed because the Bank of England has been busy printing money and BUYING government bonds (debt) then returning most of the interest paid on some £400 billion of QE debt back to the UK Treasury.

The only differences between Labour and the Conservatives is the amount of debt they will print i.e. Labour is far more predisposed to printing debt to funnel towards unproductive sectors of the economy such as the public sector and the estimated 5 million of lard asses permanently sat on benefits for life who as vested interests will vote Labour, so a Labour government would probably have resulted in at least an extra £200 billion of debt printed with associated higher inflation.

This illustrates the reason for the real inflation truth that is far removed from that which the media focuses upon with the annual percentage rates of inflation that masks the truth of what is an exponential inflation mega-trend which is the primary consequences of perpetual money and debt printing monetization programmes that the government is engaged in, in an attempt to buy votes through high deficit spending, an inflation trend that asset prices are leveraged to and oscillate around to what amounts to an exponential trend.

UK CPI Inflation Index

The bottom line is that the Inflation mega-trend is exponential and the politicians, central banks and their vested interest academics deflation fears amount to nothing more than propaganda so as to allow governments to print debt (money) to buy votes with during an election year which means a year from now CPI Inflation will back above the 2% target, and probably nudging past 3%!

In terms of low inflation implications for the outcome of the UK General Election ensure you are subscribed to my always free newsletter from my next in-depth analysis and detailed forecast in your email box.

In the meantime see my existing long standing forecast conclusion as of December 2013.

16 Dec 2013 - UK General Election Forecast 2015, Who Will Win, Coalition, Conservative or Labour?

The following graph attempts to fine tune the outcome of the next general election by utilising the more conservative current house prices momentum of 8.5% which has many implications for strategies that political parties may be entertaining to skew the election results in their favour.

The the key implications of the above graph are -

  • The window for an outright labour election victory has ended as of July 2013.
  • As of writing an election today would result in a Coalition government with a majority of about 40 seats.
  • The window of opportunity for a Coalition government ends by mid 2014 after which there is an increasing probability for a Conservative outright majority.
  • A May 2015 general election at an average house price inflation rate of 8.5% would result in a Conservative overall majority of about 30 seats. Therefore this is my minimum expectation as I expect UK house prices to start to average 10% per annum from the beginning of 2014.

And also a video version of the analysis and forecast conclusion -

UK General Election Forecast 2015

Source and Comments: http://www.marketoracle.co.uk/Article49488.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2015 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

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


Comments

R.E.B
18 Feb 15, 20:39
Inflation is everywhere

Not all prices are reflected in the CPI, in fact the CPI is a very narrow measure that does not include property, land, stocks, bonds, classic cars or art all of which are heading upwards in an inflationary trend. A Ferrari 250 California Spider found in storage in France has sold for 16 million Dollars. There's loads of inflation really isn't there?


Post Comment

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

6 Critical Money Making Rules