Wednesday, 22 July 2009

MPC admits "inflation has been surprisingly high over a number of months"

The Bank of England's MPC made an extraordinary admission in the minutes of their most recent meeting. The committee acknowledges that inflation has been higher than they expected.

More ominiously, the committee tentatively suggested that the supply side potential of the economy may be lower than previously realized. Bringing rapid monetary growth together with a significant supply contraction and its means only one thing - inflation.

I know that it is hard to see it right now, but inflation is heading our way. Even the MPC are now hinting at the impending catastrophe.....

"Despite the latest fall, inflation had been surprisingly high over a number of months given both the VAT cut and the large degree of slack that the Committee thought had opened up in the economy. CPI inflation was higher than in the other major economies. The depreciation of sterling was, plausibly, one factor that helped to explain this. Indeed, the profile of CPI inflation in the United Kingdom was similar to those in a number of other developed economies that had recently experienced large exchange rate depreciations. But it was also possible that those factors that were pushing down on inflation, including the recent rise in the degree of slack in the economy, were taking longer than expected to influence the path of inflation.

Another potential factor that could explain the resilience of inflation was that the supply potential of the economy may be lower than assumed. Economies that had had significant financial crises in the past seemed to have suffered large and persistent supply contractions. The Committee had already assumed in its May Inflation Report projections that the growth of potential supply was likely to weaken considerably. But it was impossible to judge the scale and timing of any effects from the current financial crisis and the recession on the UK supply side with any precision."


sobers said...

Its no good Alice, you will be proved 100% correct, and no-one will even acknowledge the fact. They will be too busy proposing some madcap scheme to try and reduce the rapidly rising inflation figures. Prophets are always ignored, especially ones that tell unpopular truths.

Anonymous said...

Idiots are always ignored too sobers.

If you expect inflation, why are you not borrowing money at fixed interest rates and investing in physical assets like houses, gold or shares in companies?

All if these are inflation proof, and your debt will be whittled away in real terms by inflation.

sobers said...

Because Mr Anonymous I already own property outright, and gold (physical stuff), and am a farmer producing actual physical stuff that will go up nicely in price if inflation kicks in. So inflation doesn't worry me too much, cos I'm covered. But there are many people who will buy the govt line about deflation and not cover themselves. The savers and pensioners-to-be. The prudent people who didn't cause this debt bubble, and who will get the shaft by the govt induced inflation that will steal their hard earned savings and life's work.

Anonymous said...

Over at John Redwoods blog we learn "the Treasury thinks the two [banks]they bought could lose £77,000,000,000"

Given that that sum is, poof! Gone, then if the government is intent on printing more than £77,000,000,000 then we might see a little extra inflation.

Anonymous said...

sobers: "and am a farmer producing actual physical stuff that will go up nicely in price if inflation kicks in."

Can I have a job?

Not the first anonymous.

sobers said...

@anonymous12:07 - £77,000,000,000 is £77bn. The BoE has already printed £125bn to buy govt debt, and could well print more.

Anonymous said...

Sobers: "The BoE has already printed £125bn to buy govt debt, and could well print more."

Given that house prices are down, for the sake of argument 15% - 20% what does that represent in a gross amount that has disappeared from the economy? Probably not to return for a generation - (is that twenty years?)