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So money-supply growth of 18% plus
consumer prices inflation half-as-great again as the official target now
equals deflation. Right...?
OH HORRORS! "Deflation hits UK
economy for first time since 1960," screams The Telegraph. "UK falls into deflation for first
time in 50 years," wails The Times.
"Inflation sinks into negative territory on steep fall in the
cost of household bills," gasps what used to be Fleet Street. "New
phase heralds a fall in wages and freeze in pensions," or so
"experts warn" according to Wapping.
That freeze in pensions and wages will in fact prove much worse than
the stand-firsts imply, however. Because as ever, behind the headlines
– and far from the news-desks as well – the true picture of Britain's
new-found "deflation" is a long way from clear. It's also a long
way from anything like true deflation.
You see, down in the devilish detail, blaming "deflation"
for the Bank of England's record-low interest rates is now getting tough.
Such historic accommodation can only be explained, instead, as a blatant
attempt to reflate the housing market and also
refloat the City, making it whole at savers' expense.
The commercial banks are now printing money, earning 8% and more
between deposit and lending rates. And thanks to the national deflation scare
– played up so hard on today's release of official inflation data
– the banks can also borrow from the Old Lady almost 2.5% below the
official Consumer Price inflation rate, while paying barely 0.6% per year to
cash ISA savers.
The upshot? Just as in the 1970s, these negative real rates of
interest are proving rotten for cash savers, but good for Gold Investment. Because
the opportunity cost of holding metal – otherwise known as the lost
interest you could have earned on paper – has been entirely removed.
Indeed, consumer price inflation – the Bank of England's
mandated target – has now overshot the 2.0% bulls-eye in 32 of the last
36 months. Even the old Retail Price Index – apparently slipping into
deflation this March, down 0.4% from a year before to fall into the red for
the first time in five decades – continues in fact to rise, and rise
strongly, once the more knocked-about and politicized items in the official
data agency's shopping basket are removed.
Excluding mortgage-interest repayments (slashed by the Bank of England
in its own deflation scare) together with indirect taxes such as VAT (cut by
the Treasury in its debt-fed stimulus binge), the RPI rose in March at 3.2%
year-on-year. That was half-as-fast again as the last decade's average rate.
Thus deposit-account savers thus lost fully 3 pence in the pound of their
purchasing power.
And all amid "deflation" remember...deflation which
apparently coincides with 19% year-on-year growth in the money supply –
and which is otherwise known, in a boring old technical sense, rather than a
headline-grabbing shudder, as "inflation".
The gold price in Sterling, in
contrast, stands 35% higher for UK investors from this time last
year. And here at BullionVault, we guess Gold's
appeal will only keep growing until the real returns paid to cash turn
sharply higher.
Which ain't going to happen now that deflation's arrived. Right?
Adrian
Ash
Head of Research
Bullionvault.com
City
correspondent for The Daily Reckoning in London,
Adrian Ash is head of research at http://www.bullionvault.com/#24HGOLD
– giving you direct access to investment gold, vaulted in Zurich, on $3 spreads
and 0.8% dealing fees.
Current gold price, no delay
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Note: This article is to inform your thinking, not
lead it. Only you can decide the best place for your money, and any decision
you make will put your money at risk. Information or data included here may
have already been overtaken by events – and must be verified elsewhere
– should you choose to act on it.
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