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Where-oh-where can all this inflation - which doesn't exist - be coming
from...?
There's
none so blind as those who claim they can see.
"I
can see another crash coming," said UK coalition Cabinet member Vince
Cable this week. Sage words no doubt, from the man who began warning that
UK banks would hit trouble in...umm...late 2007.
Now, again, he thinks the crash will come in banking...and he thinks it will
come due to a lack of regulation.
"The
political class as a whole is not preparing the public for how massive the
problem is. There is not the recognition, to my mind, of the seriousness of
the problem."
But
what's this? In the same breath, the ex-economist adds:
"We
don't have an underlying inflation problem."
Really,
minister?
"As
an outsider looking in, I take the view of the doves," Cable told
Bloomberg back in February. "Although you have inflation, it's almost
entirely imported. There's not very much evidence of British inflation taking
place."
In
fact, he claimed, "It's virtually
deflation."
No,
minister. It really isn't. Not in the cost of living. Deflation is only
hitting real incomes. And only because we really do have an inflation
problem.
Retail
prices - excluding housing - rose an average 6.3%
annually in the last 3 months. That's the fastest pace since Spring 1992.
Twenty years ago, however, UK interest rates were at 10%. They're now down at
0.5%, and have been stuck there for well over two years.
The
net result? For anyone not buying house today (which as Vince Cable knows,
means pretty
much everyone right now) it's the sharpest loss of purchasing power in
cash savings since Jan. 1978. Worse still, average earnings are rising at barely one-third the pace
of inflation, growing by just 2.3% year on year.
Still,
never mind. "The Bank [of England]'s job, as the governor keeps pointing
out, is not to look at today's numbers, but to look 18 months ahead," as
Cable told the New
Statesman this week. And of course, the Bank of England - stuck at
near-zero - says inflation will fall back. Just like it's
said inflation will fall back for the last 18 months.
"I
find that reassuring," says the Business Secretary.
 
Oops!
The Bank's record at forecasting inflation even a year hence is growing ever
worse, as Peter Hoskin at The
Spectator notes, citing this chart from Citi.
Because
somehow, the famous "output
gap" keeps failing to put a lid on prices, even though unemployment
is rising, growth has evaporated, and consumer credit and spending continue
to flatline.
"Retail sales in
April 2011 compared to April 2010 saw sales volumes increase by 2.8%,"
says the Office for National Statistics. "The value of
retail sales increase by 6.2%."
How
come? What could possibly be driving prices higher in the absence of booming
demand? Without the legendary "second-round effects" of
inflationary wage claims, why on earth would the value of money be falling at
its fastest pace - even on the official figures - for nearly two decades?
To
quote Vince Cable, there is not the recognition of the seriousness of the
problem.
Adrian Ash
Head of
Research
Bullionvault.com
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City correspondent for The Daily Reckoning in London, Adrian Ash is
head of research at BullionVault.com – giving you direct access to investment
gold, vaulted in Zurich, on $3 spreads and 0.8% dealing fees.
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