UK CPI Inflation Soars Above 2% Targeting a Break Above 3%

By: Nadeem_Walayat

UK CPI inflation is expected to bust through 2% tomorrow (Tuesday 19th) towards a target of 2.6% which was set over 3 weeks ago in the in-depth analysis and UK inflation forecast for 2010, that forecast a rise in UK inflation to above 3% early 2010, spiking as high as 3.6% and staying above 3% for most of the year only dipping to 2.7% by the end of the year as illustrated by the below graph.

Whilst the forecast for December data is at 2.6%, I would NOT be surprised if CPI inflation actually comes in at an even stronger rate of as high as 2.8% which would truly result in a shock reappraisal in the mainstream press that is still in large part lost in the midst's of an inflation / deflation debate, though I don't expect any of the permanently deluded academic economists stuck in the myth of deflation to see sense no matter how high inflation soars.

The reasons for Decembers anticipated inflation surge are:

• Strong UK Economic Recovery underway.
• Oil prices having trended higher to above $80
• Impact of the 2008-2009 sterling depreciation of approx 25%.
• Petrol price rises
• 2.5% VAT increase back to 17.5%
• £200 billion of Q.E. or money printing with more to come during 2010 regardless of the consensus view that it has ended.
• Strong global economic recovery underway, with booming emerging economises (especially china) feeding the inflation fires as commodities prices soar.

Further analysis on the sustained inflation trend to above 3% is detailed in full here.

The mainstream press will tomorrow respond with many inflation shock and awe headlines to grab readers attention as a consequence of the surge in UK CPI inflation, as the mainstream press belatedly starts to awake up to the reality of the inflation mega-trend and will thus and quickly produce much copy in an attempt to explain why inflation soared during December though at least several weeks behind the curve and without any real depth of analysis to enable accurate projections to be formulated.

I also expect many of the so called "think tanks" to seek to revise forecasts for UK inflation and interest rates which only as recently a few days ago were forecasting little or no change in UK interest rates for 2010 as illustrated by earlier today's Ernst and Young ITEM Club forecast that expected no change in UK interest rates during 2010.

The immediate market reaction can be expected to be for stocks to fall and sterling to rise as both move towards discounting higher UK interest rates.

The full implications of the inflation mega-trend will follow in a FREE ebook which I am to complete within a week, to receive this in your email in box ensure you are subscribed to my always FREE newsletter. Below are forecasts for UK interest rates and economy for 2010 and 2011.

UK Interest Rates Forecast 2010

My in-depth analysis and forecast of 13th Jan 2009 forecast that UK interest rates would rise to 3% by mid 2011, and end 2010 at the target rate of 2%.

UK Economy GDP Forecast 2010

My in depth analysis and forecast as of 31st December 08 forecasts strong UK economic growth of 2.8% for 2010 and 2.3% for 2011 which follows the forecast for 2009 for GDP contraction of -4.75% as of Feb 2009.

Source : http://www.marketoracle.co.uk/Article16583.html

Your analyst generating tomorrow's headlines three weeks ago.

By Nadeem Walayat
http://www.marketoracle.co.uk

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Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on UK inflation, economy, interest rates and the housing market . Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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