Wednesday, 15 December 2010

The November inflation number - much worse than expected

The November inflation numbers were really quite shocking. The headline 12 month CPI increase was 3.3 percent, while the retail price index increased by 4.7 percent. The underlying trends suggest that inflationary pressures are growing very rapidly.

Here is a breakdown of the monthly change in the main price categories.

The change in food and non-alcoholic beverages prices was the most alarming. Overall, this category rose by 1.6 per cent, the largest ever rise for an October to November period. The biggest increase came from fruit where prices rose by an eye-watering 7.5 per cent.

Clothing and footwear prices also increased sharply, recording a 2.0 per cent monthly change. Again, this is a record rise for an October to November period.  Furniture, household equipment and maintenance also showed a record rise for  increasing by 1.6 per cent. If these monthly rates were annualized, then we would be looking at double digit inflation rates.

It is now about a year and a half since the Bank of England started printing cash. Normally, it takes about 18 to two years for the effects of a monetary shock to feed into inflation. The latest data illustrates that he effects of quantitative easing are now being felt very much as one would expect.

As the old man of monetarism - Milton Friedman - once said, "inflation is always and everywhere a monetary phenomenon". He is being proved right once again here in the UK.


Anonymous said...

Quite shocking.

David B said...

I believe most of the world's furniture and much of the clothing and footwear is manufactured in China. How does the B of E imagine that capacity in British factories will have any impact on the prices of such items in the UK? China I believe has inflation variously estimated at 9 to 19 percent. We have a currency which has depreciated. Are the MPC on the same planet as us?

Anonymous said...

Yep, just as I predicted. As you say it takes 18 months to 2 years to feed through so this may only be the effects from slashing interest rates, the effects of QE might still be to come!