Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Why UK Inflation Will Increase in 2010

Economics / Inflation Apr 12, 2010 - 08:50 AM GMT

By: John_Cardy

Economics Best Financial Markets Analysis ArticleThe 'expert' economists tell us that Inflation is not a risk to the UK. They say it has risen but will decline again fairly quickly and everything is under control. But it's not. Ask real people running real businesses and they will tell you there a host of reasons why inflation will increase:


1. Sterling has declined. The pound is down against the dollar. The world is now truly global, and much of the world production is in the Far East priced in dollars. Even UK manufacturers often price in dollars now. When the pound goes down, then raw materials, finished goods and components become more expensive.

2. China has Inflation. The recession hit China, with reduced growth, but now things are booming there. Shortages of labour are common. Some factories closed. The remaining ones are struggling to keep up with demand.

3. Demand in the short-term is boosted by stock fill. The world reacted to the recession by reducing stocks. Now, as we grow again, we are all increasing production, but also increasing stocks. Demand for Far Eastern production is therefore amplified, and WILL mean price increases to manage demand. Cost prices are reportedly already increased by 25% on some Outdoor Toy large items this Spring, excluding the Shipping and Currency increase.

4. Shipping has increased. The theories that economists have in their models are based on history, they have missed the fact that we are so dependent on Far Eastern production, Shipping Costs have gone mad. They are now   higher than last summer, but only around double the summer of 2008. I do not expect shippers to increase capacity too fast; rather they will take some margin first.

5. Staff demands for Rises. Costs are up for real people. Living IS more expensive. Fuel, Council Tax, and shortly NI and other taxes to rise. Many companies responded to the recession with restrictions on pay. After nearly 2 years, the pressure to increase pay will be immense. And it will not be resisted. Prices WILL rise.

6. Petrol is up. Partly worldwide demand, partly sterling and partly tax, petrol is up, and is high and will get higher. It’s at near its previous peak, but the last time it was at £1.20 per litre, Sterling was at around $2, now with sterling at $1.50, if the price of a barrel gores up to near the previous peak of $140 then there is no option, Petrol will increase dramatically. This increases all kinds of costs, from deliveries, to power. And people will notice, driving the demand for higher wages.

7. Vat increases. An incredible number of retailers have absorbed all or part of the Vat increase from January. This has helped to keep inflation down so far, but has slimmed margins. It has effectively taken some of that economists slack out of the economy. Retailers will not be able to resist taking some increases soon.

8. It’s easy. Once in the habit, increasing prices is easy. Recently it’s been hard to increase. Customers question it all the time. When everyone is doing it, and justifying it, it becomes the norm. Have you seen the almost constant letters from suppliers already advising of abnormal pressures that mean prices 'have to go up'? Soon it will be normal. When it is, prices go up faster and more quickly. I remember in the 1980's when all of our profit came from the price increases. And that meant we did them twice a year. Don’t rule out multiple price increases.

9. Businesses are smarter. Government and BOE are surprised by how business has behaved in this recession. Business failures and staff cuts are much lower than expected. I am not surprised, business have got smarter. They have done innovative things like cut hours, rather than cut jobs, so they can keep skills. So, expect innovation on price increase. They will not be increases, they will be surcharges. So, your will have seen WEEE surcharge, The Credit Card Processing surcharge, the variable Fuel surcharge -  that goes up and down in theory, and as Government increases taxes, you will see them passed on as 'Tax surcharge'. We even had a supplier try a 'Working Time Directive Surcharge' because they had to give a rise to staff!

So, overall inflation is VERY real. The BOE believes it will be back below 2% in Q3. Nonsense. It will not happen. Wait and see. Today Producer prices and input prices are all up. We knew it would be. And for the reasons above, it will continue.

There is only one solution. Push up Interest Rates. Not to take money out of the economy, but to boost Sterling. Boosting Sterling will alleviate the imported pressure of many of the above, but would also have an impact on demand. It's Risky. It would increase costs for UK mortgage payers, but might put some money in to the pockets of people with savings. A tricky dilemma, I'm glad I am not faced with.

But, believe me, Inflation is here and strong, unless Sterling can recover. I think the Bank of England will be looking at todays figures and perhaps start believing too.

John Cardy is a Director of a UK based Outdoor Toy manufacturer, selling Trampoline Products and Climbing Frames.  He writes trampolineman.wordpress.com a blog about life running a small business in the UK. He believes that people running real business have a more instinctive and instant view on what is really happening day to day and a better grasp on what the issues are than expert economists and politicians.

© 2010 Copyright John Cardy - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in