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Bank of England's Inflation Targeting Mandate is Bankrupt as CPI Rises to 3.3%

Economics / Inflation Dec 14, 2010 - 12:33 PM GMT

By: Nadeem_Walayat

Economics

Best Financial Markets Analysis ArticleUK Inflation for November rose once more to hit 3.3% form 3.2% which makes a mockery of the Bank of England's primary objective of targeting CPI inflation at 2%, instead of which UK inflation has been above 3% for virtually the whole of 2010. Not far behind the bankrupt Bank of England's temporary high inflation mantra is the mainstream press and major institutions and so called think tanks that have lapped up the Bank of England's Deflation threat propaganda and sleep walked their readers into high inflation disaster as inflation protection props have been pulled away one by one (NS&I RPI Indexed Certificates).


UK Inflation Forecast 2010

UK CPI Inflation at 3.3% for November 2010 is set against my trend forecast for 2010 as of December 2009 that projected CPI above 3% inflation for virtually all of 2010 (27th December 2009 UK CPI Inflation Forecast 2010, Imminent and Sustained Spike Above 3%) and the Inflation Mega-trend Ebook of January 2010 (FREE DOWNLOAD) as illustrated by the below graph.

UK Inflation August 2010

The more recognised RPI inflation measure jumped to 4.7% (4.5%) which is set against public sector pay freezes and private sector pay cuts. The perma deflationistas' who have been wrong ALL year continue to get full copy in the mainstream press such as Capital Economics, attempting to explain away high inflation because of of x,y,z always temporary measures.

Here are some comments from Mid year:

Vicky Redwood, UK Economist, Capital Economics

The greatest risk is deflation, due to the large amount of spare capacity in the economy. We doubt that the full effects of this slack on prices have been felt yet. Fears about inflation are overdone. The recent rise is primarily the result of temporary factors. And the Bank of England's QE policy is still having a limited impact on broad money growth, so fears that QE will be inflationary also seem overdone.

Ex-Bank of England Committee Member, Danny Blanchflower banging away as usual on his Deflation drum

Deflation is the main risk. Governments are currently unable to create inflation other than by increasing indirect taxes. Oil and commodity prices have fallen again.

However every month for the the whole of 2010 there has ALWAYS been something temporary to explain why inflation is.... well... temporarily high. The game played by academic deflation fools is to strip out of the inflation indices all that has risen and leave behind those few items that have fallen so that inflation fits in with their bankrupt deflation scenario, which is why deflationistas' love quoting core inflation because it excludes FOOD and ENERGY that are soaring in price because as we all very well know that no one in Britain eats anything or warms themselves anymore, therefore obviously Food and Energy must be excluded from the inflation indices. However the deflationistas' core inflation favourite friend has also been ticking higher to now stand at 2.7%, which means they will switch to another measure pretty soon, never mind the fact that REAL inflation is above 6%!

UK CPI Inflation Prospects for 2011

As elaborated in the Inflation Mega-trend Ebook (FREE DOWNLOAD), I am expecting high inflation for many years, whilst the forecast for 2011 is pending, however there is every sign that the average inflation rate for 2011 will be higher than that which was for 2010, which again is contrary to the Bank of England's forecast for CPI 1.7% for 2011 as per the November 2010 Inflation Report.

Bank of England's Bankrupt Inflation Propaganda

The Bank of England's most recent Inflation Report (November 2010) now forecasts UK CPI Inflation to target an early 2011 peak of 3.5% before inflation falls to below 2% CPI by the end of 2011 to target a rate of approx 1.7%, and for inflation to remain well below 2% into the end of 2012, therefore supporting the Bank of England's persistent view that everyone should focus on the Deflation threat and ignore high inflation during early 2011 so as the Bank of England can continue to peak interest rates well below the real rate of inflation for the purpose of funneling savers and tax payers cash onto the balance sheet of its bankster brethren.

Whilst the mainstream press laps up the latest inflation report, according to the Bank of England's forecast for UK inflation as of Feb 2010, CPI inflation by November should have fallen to about 1%, instead it is at 3.3% (see graph), with the forecast for inflation to fall to below 1% by the end of 2010 and magically always converge towards a sub 2% target in two years time which fails to occur 96% of the time.

Clearly the Bank of England relies on the gold fish memory of the mainstream press as the BoE seeks to revise inflation forecasts every quarter to always push forward sub 2% to two years forward, which is nearly always preceded by a trend to below 2% one year forward. The fact is that the quarterly inflation reports are nothing more than economic propaganda aimed at psychologically managing the populations expectations on the economy and inflation in the direction where the BoE wants it to be as the alternative would be to make the BoE's job harder.

For instance if the Bank of England stated that Inflation would be 6% during 2011 then that would ignite a wage price spiral that would make the Bank of England's job at controlling inflation significantly harder, therefore it is much more convenient for the Bank of England to be deliberately wrong in its inflation forecast than to accurately publicise probable inflation expectations. For instance if the Bank of England was not expecting high inflation during 2010 and beyond then why did the Bank of England staff pension fund switched from being 30% invested in inflation index linked government bonds to 70% during late 2009 before inflation more than doubled?

More here - The Real Reason for Bank of England's Worthless CPI Inflation Forecasts

Translating the Bank of England's Inflation Propaganda Report - If the Bank expected UK inflation to end 2010 at 1% instead it looks set to be around 3.4%, then the Bank of England's current expectation for UK Inflation to be at 1.7% by the end of 2011 suggests that UK CPI will again be well above above 3% and probably spend several months above 4% during 2011, with RPI significantly higher, and likely to break above 6%. In-depth analysis and forecast for UK inflation for 2011 will follow later this month, ensure you are subscribed to my always FREE NEWSLETTER to get this and all other in depth analysis and forecasts in your email in box.

UK Regulator Hides Bankster Bailout Truth

The UK FSA has decided to keep secret the report into the collapse of RBS that has the potential of bringing criminal charges against those responsible, which further highlights whom the FSA truly serves, not the British public and their elected representatives but the bankster elite. It should not be forgotten that the FSA failed to regulate the banks which is not so surprising given that it is populated by bankers that operate within an revolving door institution, as they move in and out of banking sector that they professes to regulate, much as Goldman Sach's staff in New York infect the U.S. Treasury and Fed.

My next in depth analysis will look at the prospects for interest rates during 2011. To ensure you receive my in depth analysis and forecasts in your email in box subscribe to my ALWAYS FREE Newsletter.

Comments and Source: http://www.marketoracle.co.uk/Article25005.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-10 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

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 and he is the author of the NEW Inflation Mega-Trend ebook that can be downloaded for Free. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 600 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

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 trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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