Tag Archives: UK Inflation

Inflation above target, the governor writes another letter, we have the real version!

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CPI service sector inflation has averaged 3.6% for the last sixteen years and the 2% target rate has only been achieved by an extremely flattering 1% rate of goods inflation. This of itself a function of a relatively high sterling exchange rate, an undervalued Renminbi and cheap products from the Asian block. Such facts are unhelpful in our model understanding of the way the world really works.
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UK Inflation Report – the model is flawed – it’s time for a futile gesture

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The inflation report made for gloomy reading, the bank has adjusted the forecasts for growth this year to around 2% and inflation is heading the wrong way towards 5%. Not to worry, in the medium term, inflation will revert to target 2% because that is the way the Bank of England model works. The Governor cracked a joke, suggesting a rate rise from such a low floor would be a futile gesture to manage the economy. For savers in the “unhappy economy” whose earnings have been severely damaged, this would be a positive gesture to reward the prudent and far from futile. JKA
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UK inflation rises to 4% – the hawks are circling, will rates have to rise?

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Inflation CPI basis in January increased to 4%, that’s twice the level of the Bank of England target. The Governor has had to write yet another letter to the Chancellor explaining why the MPC was failing in the challenge to curb inflation. In his letter to the Chancellor, Mr King said three primary factors were behind the increase, the fall in sterling, the rise in VAT and recent increases in the prices of commodities, particularly energy. The Bank of England is running out of room and stretching credibility. Views within the MPC are polarising. The dependence on “gapology” is anachronistic. Two hawks are on the panel already but more doves will morph before too long. If the first quarter GDP figures are as strong as expected, interest rates will rise as early as April or May.
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UK Consumer confidence slumps … were they all in Newcastle on Tuesday

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According to the latest GfK NOP survey, consumer confidence slumped in January as households worried about economic prospects for the year ahead. Household spending will be under pressure in 2011 as real incomes fall and discretionary income will be further squeezed by the January VAT increase.
The Bank of England still believes inflation will fall to target as the soup kitchens undermine retail food prices. And the Governor, still believes the economy is rebalancing towards net exports and away from consumption.
As a result of inflation and low earnings, real wages will be no higher than in 2005 and “one has to go back to the 1920’s when real wages fell over a period of six years.” said the Governor. As Tolstoy or Macmillan may have said “you’ve never had it so bad”. It certainly didn’t sound good.
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UK Consumer confidence slumps as they hear from the Governor …

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According to the latest GfK NOP survey, consumer confidence slumped in January as households worried about economic prospects for the year ahead. Household spending will be under pressure in 2011 as real incomes fall and discretionary income will be further squeezed by the January VAT increase.
The Bank of England still believes inflation will fall to target as the soup kitchens undermine retail food prices. And the Governor, still believes the economy is rebalancing towards net exports and away from consumption.
As a result of inflation and low earnings, real wages will be no higher than in 2005 and “one has to go back to the 1920’s when real wages fell over a period of six years.” said the Governor. As Tolstoy or Macmillan may have said “you’ve never had it so bad”. It certainly didn’t sound good.
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UK producer Prices rise to over 13% in April

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The good news for those who think inflation will fall back to target quickly is the the all items index for output prices excluding everything but medical precision kit, optical instruments, watches and clocks, non metallic mineral products, rubber and plastic products and wearing apparel, didn’t go up much. In fact it was less than 1%. This latest report is great news for surgeons with rubber gloves and a penchant for cross dressing presumably.
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