A surprise? Definitely. A problem? Possibly

A surprise to whom? I'm surprised but only that they are not even higher. Mind you they always add that after inconvenient price rises have been "stripped out" the figure is really lower. Frazer Hush would like to take this opportunity to announce that inflation is officially zero once price rises are stripped out - thus proving our government has inflation under control.

Stephanie says

A lot of that increase is due to what economists call "base effects": utility bills were falling sharply in the first months of 2009. The headline CPI automatically goes up, when those declines fall out of the index (especially with energy bills now going up quite sharply).

So, have prices gone up in the 12 months to March or not, regardless of this effect or that effect. It doesn't matter what reason or excuse is given, the fact remains, prices are up 3.4% in the year to March.

I very much doubt it surprised everyone - it didn't me.

What would be a surprise is if they came clean and announced what the real figure was.

I wonder how much unrest this will start to cause in the private sector amongst people who got no pay rise because "inflation is only going to be 2% this year - it's the goverment's target".

Is it a problem - "probably not"

Are we having an election?

What surprises me is that the expectation was for low inflation. The price of oil, in sterling terms has risen 60% in 12 months. Given the demonstration in recent days of the effect of transportation on modern day life, why should we expect inflation not to go up even more? Do we really think that transport companies do not pass on this cost?

Then there is all that 'paper money' that has been pumped into the economy. Go back 30 years and wasn't there some link between supply of paper money and inflation? Or is that 'old theory'?

Good grief.

Inflation is a problem, or should be a problem, but there are bigger problems - namely the huge overhand of private debt. Of course the private debt bubble was itself substantially caused by the handling of interest rates by the Bank of England during the last decade and that was due to their incorrect handling of inflation statistics, but as that wasn't a problem, it isn't a problem now!!!!!

The Bank of England and the MPC have neither the wit or the guts to do the right thing now, as they hadn't in the past. Gutless and witless so all they do is issues statements that everything is wonderful when any sane person with half an ounce of understanding of basis economics (not the sort taught by the schools of economics paid for by the masters of the universe) knows it is a problem. This is the very heart of the problem with economics. I guess that a bunch of academic leaders will write another letter to the Queen trying to explain away their total incompetence in a few years time, just as they did last year.

The must fix the value of money problem and they must increase interest rates so that the price of money brings back value to savings and cost to borrowings if they don't even more exotic CDO and synthetic financial instruments will be constructed to create the fake money that will cause yet another and an even more destructive bubble and crash. These fools gave us the bubble and crash and have leaned nothing and are trying to do the same thing again. They MUST go!

I imagine that the surpise isn't shared by the policy makers. This is an engineered theft. Inflation without wage inflation will impoverish the poor yet allow the asset rich to remain relatively well off.

This is the final act of intergenerational vandalism by a generation that can't admit that asset prices need to realign before any progress can be made.

Inflation is a problem for me. For 2 years I have enjoyed a pay freeze. Pray tell what the ecomic effects of continuing inflation will have on my ability to fuel the economy.

In our system where money is created as debt:

Inflation = more money created
More money created = more debt
More debt = more interest
More interest = poorer standard of living
Therefore inflation = poorer standard of living

The Retail Price Index is now at 4.4%.
How many have seen their income rise by 4.4% in the last year?

"Inflation has surprised everyone again. Is it a problem? The best guess is: probably not."

Best guess - by who? Those who brought you this mess perhaps? Their guessing days are over I'm afraid. This seems to be the beginnings of Hyperinflation - I mean did anyone seriously think there would be no consequences to printing ooodles of money?

Don't forget folks this 3.4% inflation rate isn't actually a measure of prices - it's a measure of some rising prices. Conveniently chosen to produce a favourable picture.

The reality is inflation is running far higher than this shows - which is why Gold is the haven for most smart money. They are trying the same in the US by excluding food from the inflation basket - I mean it's not like we all need food now is it?

The consequences of lying to oneself is to produce a fantasy which will be mentally fractious when reality bites. The BoE will all quit and the new Government will blame the last one - none of which will have any effect as the markets tear this country to pieces.

I'm so glad so many people have woken up just before the grand finale - at least you'll have an idea of what's going on when the curtain comes down!

...others will be less fortunate - and will only realise when the power has been off for days.

The bulls of this world will read this inflation rise as a sign of recovery.

However there is no growth except money supply growth created by QE - so how is that recovery and not stagflation?

It seems Economic fundamentals are dropped by the capitalist supporting media whenever it reveals an inconvenient truth.

The whole thing is fubarred.

"Food prices have also gone up...."
.....and a supermarket announces £3billion of profits, up from last year. All thanks to the shareholders and not to their consumer customers, what a surprise.

"That is because - like the US - a lot of our government debt is held abroad"

Anyboby know where I can get info on this ?
I was under the impression that most of the debt was held by pension and life assurance funds with about 20% held overseas.

If most of the debt's held abroad then I'm surprised that the fall in bond prices hasn't been greater. In that case we may as well keep printing.

All this user's posts have been removed.Why?

"Investors also know that the UK government has more to gain from an unexpected bout of inflation than almost any other economy."

That makes me certain that it is not unexpected by government.

so Im getting less than 1% on my savings and inflation is 3.4 mmm so I am technically losing money by being prudent, Im not putting my money anywhere near the rigged corrupt stock market or with any financial corrupt institutions
I guess I could manufacture a cdo and try and flog it to someone

oh forgot they have been printing stacks of money too of course that will see the devaluation of the pound making things more expensive

Question:

What's the difference between an economist and somebody who flips a coin on every issue?

Answer:

At least the coin flipper *knows* he's got a 50% chance of being wrong every single time...

Come on Stephanie. This is no surprise. Many normal people have been going on about this for 2 years now. We go shopping, we buy petrol, we buy food, we heat our homes, we travel around, we pay school fees, we pay retirement fees, we exchange currency etc etc/ We already knew this other than the actual figure.

Stop being surprised and stop attempting to hide your errors by claiming nobody knew. Printing money is inflationary, and this deflation myth is and was utter nonsense. People with savings had nothing to fear from deflation - think about it. People with debts did. So the same applies to countries. Why can you just never see it. I guess you will spend your life being suprised by the obvious.

Indirect taxes like VAT @17.50% DO affect UK and HAVE RAISED inflation figures.

VAT as a tax of 17.50% does cause inflation by affecting the prices of:

Food : Distribution costs (VAT on petrol/diesel on top of GOV duty), storage VAT on refrigeration, plus VAT on service industries who maintain essential services.

Hospitals: VAT on heating, lighting and basic laundry and cleaning services. Even toilet paper!

Education: VAT on school maintenance; school building; locum teachers.

Food Safety: VAT on consultants employed to examine food poisoning outbreaks.

If you want to know where all this VAT @ 17.50% charged on everyone and everything goes - then please tell everyone in UK?

The general well-being is unevenly distributed. There is no single economy. Those who have profited from the financial crisis, the bankers in particular, have kept the prices up. Although the banks pay little or nothing for the money they have received from the taxpayers they continue to lend at profitable rates for them. As they have maintained these rates any new economic activities will, in their minds, justify higher interest rates for borrowing. This will and does slow the economy but we are talking about bankers and they have no national interest. As this entire process of dealing with the banking caused financial crisis has been the maintenance of the status quo concerning the financial sector and therefore the recovery will only be to their benefit. No one has the brains or the guts to really change a system that is severely in need of change.
Educate your children about this because it will happen to them as well as nothing has changed.

Read this below.You wont find this in the election.

Economy more likely to improve with Conservatives say City investors
A new ORB survey of investment professionals – within institutions managing a combined total of £1.75 trillion – points to City concern over the implications of a Labour victory or hung Parliament.

* 77% think that a Labour victory or hung Parliament could lead to a downgrading of the UK’s sovereign credit rating
* 74% think that a Labour victory or hung Parliament could lead to a fall in the value of sterling
* 55% think that a Labour victory or hung Parliament could lead to a long term rise in interest rates

Nearly seven in ten (68%) of the senior City professionals ORB spoke with believed that the UK stock market would be most likely to rise if the General Election resulted in an outright Conservative victory - an outcome associated with a Labour win by only eight per cent of those polled. A Conservative win was also, on balance, seen as being the most likely to benefit sterling, the UK’s sovereign credit rating and to keep interest rates from rising.

This sample of City opinion overwhelmingly regards the Conservative economic team of Cameron and Osborne as being the most likely to get debt under control (76%), to deal with the budget deficit (75%) and to promote growth (69%). They are also significantly more likely to be rated as the team which will best manage the economy (66%), that understands ‘big business’ (63%) and as being ‘prudent’ (59%).

The survey found respondents rating the Conservatives most highly on all bar one of the 14 statements put to them. Although still behind the Conservatives, the Liberal Democrats ‘best’ showing came as regards their ability to balance social and environmental issues with that of the economy, while Labour were described as being “experienced.”

In separate questions almost every respondent (95%) said that Alistair Darling’s recent budget failed to demonstrate a credible plan for cutting the budget deficit while three-quarters (75%) thought the Budget’s growth forecasts were “too high.”

Underlining the City’s scepticism over the Labour Party’s economic credentials, over six in ten (62%) of those polled disagreed that a clear Labour majority, rather than a hung Parliament, would be in the best interests of investors.

ORB interviewed 145 senior professionals within large UK-based institutional investment organisations. A total of 89 institutions were covered with their combined assets under management (AUM) amounting to £1.75 trillion. The Portfolio Managers within the survey were personally responsible for combined AUM of £121.5 billion. Interviews were conducted by telephone between 29th March and 13th April.

How can the Government expect inflation to drop when it constantly raises the tax on something that has an element of it in everything we buy. I am talking about fuel taxes/duties. What is the point of the government helping out the motor industry with the scrappage scheme whilst stifling consumer demand with punitive fuel taxes? We now have the dearest road fuel on the planet - why? I well remember Brown travelling to the middle east when oil was $150 a barrel to point out to the oil producers that the high price was stifling economic recovery when the real purpose was to get the oil price lowered to make his own tax rises less obvious. All supposedly in pursuit of a `green` policy. Yet still no similar tax on aviation fuel which pollutes the upper atmosphere. My favourite quote of the last ten years `the last man to enter parliament with honourable intentions was Guido Fawkes`

17. At 1:39pm on 20 Apr 2010, Jeremy Silverstone wrote:
Come on Stephanie. This is no surprise.
-----------------------------------------
Does Harvard only produce economists that follow government lines? Stephanie's grandfather would I am sure have not approved.

"That is because - like the US - a lot of our government debt is held abroad"

Sorry to labour the point but this bit of research by Institutional Investors Advisors (I'm not sure they meant to release it to the plebs) claims that 28% is owned by overseas holders and the BOE holds about 30% through QE that of course had nothing to do with funding government.

[Unsuitable/Broken URL removed by Moderator]

Its quite an interesting read. Consensus seems to be get out of gilts asap

5. At 12:58pm on 20 Apr 2010, Blogpolice

Oh there is no end to the fantasy that can be drawn just so a faux-surprise can be shown as if it was unavoidable.

You are 100% corect, you print money, devalue your currency and your Economy relies on imported oil - there can be nothing else but inflation.

I suspect it's not even higher because oil is priced in Dollars and because the US is manning the presses too - the price of oil has been muted.

However - those people who look into the future - will have spotted that the Middle East already have a new currency planned - in which to price oil.

If our Economies make it to 2015 (which I think it the proposed float) - then that action alone will kill off all the resource and production light, but oil demand heavy western nations.

....and yet some will be surprised when it comes...

8. At 1:06pm on 20 Apr 2010, Dempster wrote:

"The Retail Price Index is now at 4.4%.
How many have seen their income rise by 4.4% in the last year?"

I hope all those in the private sector who took their pay cuts without complaint are taking note.

That is your stealth tax - not any VaT increase or other Government change. At least they report those but inflation taxes you every single day.

...so now the BA cabin crew don't look so stupid after all - at least they are fighting against the tax the rest of the private sector cannot see and have gleefully accepted in light of 'keeping their jobs'.

Welcome to Rome plebians - find yourself somewhere to 'chain up' and we'll get on with the show...

Inflation? No issue at all, it'll come down soon guv. Deflation? Absolutely terrible. who wants lower prices hmmm?

Do me a favour! Petrol flying up (we've had the inflation!). Car prices flying up. And of course good old house prices flying up. Stock market soaring. Commodoties soaring.

Is the recovery locked in yet? Can we start saving again please?

11. At 1:18pm on 20 Apr 2010, Kit Green wrote:

""Food prices have also gone up...."
.....and a supermarket announces £3billion of profits, up from last year. All thanks to the shareholders and not to their consumer customers, what a surprise. "

...and even more conveniently the items which are included in the inflationary measure 'basket of goods' are usually heavily discounted in supermarkets as 'loss leaders' - meanwhile everything else you need goes up.

20. At 1:51pm on 20 Apr 2010, Darrin

You're on the wrong Blog mate
Join the other spinners on Nick's blog

20. At 1:51pm on 20 Apr 2010, Darrin

I am not clear what point you are trying to make? Are you saying that city professionals have this wrong too?

Of course they want a Conservative government, they always do and the positive sentiment this will generate for the financial class would almost certainly result in a (very) short term (paper) upturn.

Are you suggesting that this makes it the best long term result for the poorer members of our society? Will the Conservatives deliver a fairer, egalitarian society the rebalances reward and opportunity? Why should we care what the corrupt, socially misguided and socially useless city thinks anymore?

If you "print" £200BILLION of new money and push it into the economy of course inflation will take off.
The real inflation rate would also be far higher if the mix of products used to measure inflation was not constantly modified to supposedly reflect changes in consumer demands.If the same mix of products as 15 years ago was used today the actual rate would now be over 5%.

Either the commentators on this blog are a very sceptical bunch, or Ms Flanders has got it totally wrong. I would like to add my name to the list of those who were not surprised by the increase.

We have so much of inflated value in our economy its scarcely believable. Stock market values, house prices, costs of essential goods and services. Actually everything but wages.

Most capital values are overstated, but we're convinced that we're OK. We have fewer and fewer capital reserves that are actually of any use: ie. for producing goods and service that we need. At some stage our pound will be next to useless, imports will become too expensive and our phoney capital will revert to true values. Then we can start all over again.

13. At 1:20pm on 20 Apr 2010, Samanthav wrote:

"Of course they have proven to be wrong.Having looked at other blogs many seem to be questioning their role and the rise in inflation more than you are, as an example there is notayesmanseconomics web blog. It would appear that the current rise in inflation was not a surprise to him."

The only people who were surprised were the people who are in control - the rest of the world saw it coming from miles away - hence the Gold rush and the stock market boom.

"The best medicine for the UK - and its public finances - right now is economic growth. The Monetary Policy Committee does not want to have to crimp that growth due to keep the lid on inflation. "

A rather challenging puzzle (for the UK) that has been around for at least the last 40 years.

Latest inflation data the first ingredient in a 'perfect storm'.

Next poor GDP figures.

Followed by public sector cuts if the Conservatives get in, or whoever comes in.

Stagflation here we come.

Will 1970's fashion make a come back.

“None of this is to say that inflation is likely”, what? It is a probability of 1, CPI is nearly twice the target rate, among all the uncertainty in the economy there is one certainty, there is inflation.

It is a pity that the MPC doesn't consist of some of the respondents above.

looks like another Dear Gordon letter from MervinKing canute to the great generius

"Dear pillgrim and he who would valiant bet[taxpayers money] gainst all disaster, let me in constant sea follow the master, theres no discouragement will make me "once" relend your first avowed intent to cause indeflation"

Gordon will have to remove food from the rpi by reclassifying it as an investment that can be sold through Organsrus on Ebay

15. At 1:26pm on 20 Apr 2010, romeplebian wrote:

"so Im getting less than 1% on my savings and inflation is 3.4 mmm so I am technically losing money by being prudent, Im not putting my money anywhere near the rigged corrupt stock market or with any financial corrupt institutions "

You have just described the 'grand plan' of Capitalist Governments.

The prudent need to stop being prudent and take the place of the now bankrupt imprudent. However, as the system relies on Capital accumulation the dumb Governments haven't worked out what happens once all the prudent throw their savings onto the table for the next round of roulette.

At the moment the existence of prudent savers is the only reason we are not in a depression (because even the prudent have been taking advantage of any falling prices and thereby stimulating the Economy) - but now the Government have no bullets left they are hoping to force the savers to go 'all in'.

This is the policy of an idiot - a totally short term solution which will have catstrophic consequences. Japan have survived this long because their people had large savings with which to purchase Government bonds - thereby replacing lost domestic demand. However we (and the US) are bad savers to start with - so throwing what we have will make little impact on domestic demand but will mean we will have nothing left to boost economic recovery when (or if) it comes.

We cannot borrow more to stimulate demand - it needs to be capital earned - otherwise it's just rebuiliding the same stack of cards with the same expected results.

What recovery?

You mean the QE inclusive recovery?

Does that count?

20. At 1:51pm on 20 Apr 2010, Darrin

...and we should take on board the opinions of failed financial idiots because.....?

When are you going to work it out - they don't want a hung parliment because it means they can't have their 'mates' Osbourne and Cameron funnelling monoey their way whilst the country suffers.

I mean do you really expect people to listen to the city - I mean can you explain why their interests and goals might be the same? - because they are not - I can assure you.

If anything this says we do want a hung parliment - if the city doesn't like it then it must be good for the rest of us.

The ORB research that Darrin, comment 20, refers to is at

https://www.opinion.co.uk/Newsroom_details.aspx?NewsId=164

Since more people have debt than savings, it makes sense for Labour to pursue policies that will eventually see saver's money destroyed, and labour-voting bad borrowers debts destroyed as well.

The problem is, the policies will be coming out of the woodwork long after labour leave office.

Inflation is, and always has been the legal method for any authority to confiscate the money of those who have no control over it, and give it to those that have - That is, those who do not have the power to award themselves "inflation-busting" pay rises. These days, because of union ineffectiveness, this latter group has never been larger.

The Public, not generally understanding inflation at all, are quite happy to openly have the wool pulled over their eyes by craftily presented "deals" that in effect put the workforce on a losing futures market bet. The Recent "pay deal" that has got Royal Mail staff back to work is a good example: It's officially a 3 year deal, but with last year's pay freeze, it's really a 4 year deal. With inflation now at 4.4% (The actual cost the public pay) the deal would have to be "no strings & 17.6% over 4 years" just for real-term wages to STAND STILL! In fact, the "3 year deal" on offer is less than half that (an effective pay cut) with lots of strings to boot, and yet the Union are urging the members to vote YES on it. Just shows you how many thickies there are in the CWU at all levels huh?

Raising interest rates just causes more inflation in the figure, as it raises the cost of living. Rates cannot be dropped any lower, so the only other way of "getting inflation under control" is to stop borrowing and printing money right away. In order to maintin let alone improve any national services, the government - ANY government is going to have to ROB another part of society.

Manifestos seem short on detail of where all this new (but not newly created) money is going to come from - ie. who exactly is going to get "robbed". Personally, I'd like to see the wasters pay for the prudent, but there are plenty of wasters who vote, and plenty of prundent who don't. If that does not change in the coming election, then the prudent have only themselves to blame - Get out there and vote!

A future Tory government would likely raise interest rates, benefiting those with savings, and crushing those with borrowings. Labour would just carry on printing money, and even the LibDems don't seem to be saying exactly who is not going to be spared in the savage cutbacks to come.... Ironically, a hung parliament is likely to cause foreign lenders to demand higher interest on any new debt taken out, so the UK had better learn pretty smartish how to balance the budget each week without borrowing further funds all the time. Worry about paying back outstanding debt later by all means, but wean oneself off new credit first at least.

I would say that is good advice to anyone in debt these days.

23. At 2:01pm on 20 Apr 2010, DevilsintheDetail wrote:

"Its quite an interesting read. Consensus seems to be get out of gilts asap "

Anyone who cannot see the sovereign debt bubble must be completely blind, or work for the Government - or maybe both.

To16. At 1:27pm on 20 Apr 2010, SoxSexSax

‘Economics’:
11 fluid ounces of mathematics
2 tablespoons of politics
Add sugar to taste

No matter how well and thoroughly someone describes the magnificent attire worn by his royal highness, there will still be a small, clear eyed child who is going to utter the immortal words, "But he's not wearing any clothes."

The only real economic measure is this. Does this month's salary buy more, the same, or less than last month's salary. Everything else is smoke and mirrors.

It seems that to the BoE inflation is not inflation until people start asking for pay rises....Its not inflation as long as their house prices and large bonuses continue to go through the roof at the expence of all the average workers and those who saved for the future. Nothing will cause them to raise interest rates, it won't happen for at least another 18 months in my view, they are terrified that to do so would stop the 'recovery' in the housing market...and nothing must stand in the way of that...its what the banks want, and what they want they get, regardless of who is in government, or the price the citizens have to pay to achieve it. After all haven't both the Tories and Lib Dems also said that they would move heaven and earth to ensure interest rates stay on the floor for ever, while at the same time urging us to borrow more because its cheap. Crazy!!

Savers, why not vote with your feet and put your money into Canadian or Austrailian banks? Send the message to Merv and his mates that its YOUR money not his, it would be a safer bet than the stock market, at least those countries know how to run proper balanced economies.

6. At 1:02pm on 20 Apr 2010, John_from_Hendon wrote:
substantially caused by the handling of interest rates by the Bank of England during the last decade and that was due to their incorrect handling of inflation statistics, but as that wasn't a problem, it isn't a problem now!!!!!
------------------------
Well John, either you have a lot of savings and no mortgage or you've got those tinted glasses on, shall we go back to any of these...
see the interest rates from 18 years of Tories...
https://moneyworld.com/bank-base-rates.htm
see the mess they made...
https://www.youtube.com/watch?v=IF_7BGdo0RE&feature=related
compare any years inflation...
https://www.thisismoney.co.uk/tools-and-calculators/calculators/article.html?in_article_id=443714&in_page_id=86

1979-1997 quadraupled debt 60 to 360bn, without any global meltdown, all their own work, in the first few years of Labour it was down to 200bn.

Why is 1979-1997 relevant now, because the same old faces are still there, Hague, Clarke and of course economic adviser to lamentable Lamont the one and only D. Cameron.

I hate to say it you being selfish getting a bit more interest on your pile would cost a lot more to the economy and to decent caring hardworking family people who have mortgages.

No surprise to most of us on fixed incomes or frozen wages.

All pensions and benefits were fixed at last September's inflation rate of 0% due mainly to the temporary decrease in VAT which distorted the figures.

These came in to force from 1st April this year and increases are NIL at a time when inflation is rising at well over 4% on day to day living costs.

This decreases the value of the money we have available and at a time when interest on savings is also practically NIL squeezes the incomes of millions of people.

It was only a matter of time before the effects of imported inflation began to show as suppliers could no longer absorb such a huge extra cost.

Recessions don't end in a year and certainly not this one they only take time to bed in.

Its hardly a surprise is it when some of us have been writing about the likelihood of higher inflation for over a year now?

Remember Deflation or Inflation?

Dodo Brown has been stoking up inflation for years and then we had ... QE and then the UK is left exposed as a global importer of just about everything.

Thanks Gordo! Thanks a Bunch!

Not really surprised about this one, businesses have seen a big tail off in demand for everything. Only way they can keep making money is to increase prices which pushes even further into a deeper recession.
Other thing is petrol prices going up so I guess the claw back of the bank stimulus money has started!
Increase taxes and there would be an out cry, slip it on to fuel which people have to buy to get to work and they accept it. Most families will see there family budget getting hammered so they will cut back again!

The problem is that inflation, however caused, will depress demand in real terms.

The banks are still only providing a fraction of the credit that they provided before the credit crunch, so that in spite of the budgetary deficit and QE, there is still a substantial hole in the money and credit supply. Inflation will make this worse and any attempt to reduce the unfunded deficit at the moment, is likely to be disastrous.

This is going to hurt some pensioners, those, for example, in company schemes where the annual increase was calculated on last years' inflation figures. In the latter months of 2009 it was zero or even negative meaning that from april this year the pension 'rise' will also be zero. There is, however, a silver lining if there is a short lived parliament then, under the Pensions Act 2007, the link between the state pension and average earnings will be restored by that parliaments' end. So those receiving both pensions will at least get some recompence.
Regards, etc.

Mr T # 7 - there is of course nothing new in this. Think of capital gains tax at an effective rate of 10% (now up at 18%) compared with income tax rates. Think of all those fund managers with a "carry" paying capital gains tax at these rates while everyone else pays income tax.

I think it was the economist Graham Turner who made the point at the outset of th financial crisis that the basic problem with western economies was that the capitalists had not left enough "crumbs" for the average working family to get by on. This lead to people defaulting on their [sub-prime] mortgages as petrol, heating etc costs went up. Has anything really changed? We have avoided a depression as a result of central banks lowering interest rates to levels which cannot be maintained. This has given coprortates and individuals with borrowings some breathing space and some may hve been able to use that breathing space to repay some debt. But many have been unable/unwilling to. Once interest rates start to climb again (and they will), all those people with tracker/variable rate mortgages who are managing okay at moment and in some cases are actually much better off (assuming they still have jobs) will start to struggle again and we are potentially staring down the barrel of another banking crisis. =

Surely this is what happens when you have Quantitative Easing (QE). If you print money prices will rise. When my pension increase was calculated in October the RPI was in negative territory, however my pension was not reduced, but it did not rise.

It was obvious to anybody that prices would rise, so now I see prices rising inexorably all around me, and I am seriously at a disadvantgae. Wages are falling, or not rising either. At least with prices I can see prices rising, I actually trust the statisticians to get it right.

However, what do the politicians want to do when prices are rising, and wages falling, they want us to vote for them so that pensions are linked to wages. This will be a disaster for pensioners. I want my pension to continue to be linked to RPI, in ggod times and in the bad. Somebody must speak up for those who do not trust the figures with regard to wages, I don't know what my neighbour earns. What I do know is the price of 2 litres of milk, 86p at the last count.

What people should look into is the famous Phillips Curve, which was an economic model in the fifties. Basically, the Phillips curve is a historical inverse relationship between the rate of unemployment and the rate of inflation in an economy. It took no account of time lags because action taken today will not have an immediate effect, same with where we stand now, the effects will not be seen immediately they will be seen in the future.

A bit like QE, we are seeing the effects now of action taken many months ago. As wWinston would say, 'Action this day' because for me action taken tomorrow will be too late.

No mention of RPI in your broadcast or on this blogg.
Is the BBC only allowed to mention RPI when it is lower than CPI?
RPI 4.4
CPI 3.4
Therefore RPI conveniently doesn't exist.

With fuel going up, tax going up and goods going up what do 'they' expect?
Wages are going down due to all the increases, then the public gets moaned at for not spending and paying off loans.
Of course it is all the publics fault and not bankers or politicians that are to blame.
So how is the UK public going to spend its way out of this then when there is no confidence in anyhing?

I think Mr T at #7 has it in one

I also think some ofthe attacks on Steph are a bit overdone..she has to provoke debate and being a bit undermodulated does that----

For a few years now I have been having endless images of Manuel the hapless waiter raising his arms and then slapping them to his sides in bafflement--- "No-bodee saw global credit Crunch, Mr Fal-tee!!.. "Inflation raise is big sur-prise, Mr fal-tee"

Finally we're getting poorer but inflation helps it look like we are getting richer, it's great!!---There's no salary pressure at all in the private sector, people are desperate for work and there's no pressure to raise wages..... people aren't investing in shares as much as collectables, antiques, art etc...... zero interest rates mean your money is better off in Dinky toys than investable reserves designed to grow the wealth creating base of the UK.

As Talking Heads had it We're on the Road to Nowhere---and the future is certain, give us time to work it out

cheerio

None of this is to say that inflation is likely - let alone desirable. But it is more of a live issue than the Bank or anyone else would like it to be, so early in this economic recovery.

>>>>>>>>>>>>>>>>>>>>>>>>>>>

What economic recovery?

UK 'Inflation' has been extremely likely as a result of QE and world demand for e.g. fuel with the UK being a much exposed net importer?

Will the ONS remember to adjust GDP this time for inflation

By the way - inflation is also fiddled by UK government - UK inflation level is higher than the official figures due to calculation methodology - a good amount of Gordo Brown government 'monkey finance' involved.

When are we going to be told the dirty nasty stuff ... i.e the truth about these bent UK government stats?

No surprise at all. In fact, its almost exactly as I predicted it.

In mid 2009, my colleague and I (who both work in the City, although not for a bank or an investment house - so don't start yelling at me...) were discussing how the UK economy might pan out over the following 18 months.

The predictions we made were:

Equities start to recover from about June 2009 (correct)
Equities up about 15% by Q1 2010 (incorrect, they went up by more than 30% on average, but still, its the right direction)
Growth returns in Q4 2009 (correct)
At about 0.5% (Almost spot on - 0.4%, although initially thought to be 0.1%)
Inflation increasing from Q2 (Correct!)

We also predicted that interest rates would start to rise in Q3. Hmmmm....I think that might be true too.

No, we're not geniuses. If you read some fairly basic metrics on a daily basis it really isn't rocket science.

And certainly no surprise.

39. At 2:43pm on 20 Apr 2010, Mike3

A telephone survey of 145 'top line' investment professionals. I wonder what bias that group might have? I am sure they are all itching to see Vince Cable to have any influence.

I note that the Conservative party are one of thier clients though I am sure it would be unfair of me to make any assumptions.

On the behalf of the next generation soon to graduate from university... I would like to first say look at the state of this place.... What Have You Done!!!! No possible job prospects.... No possible chance of obtaining affordable housing.... Taxed to the hilt for pensions... banks.. war and CO2 emissions I never did..... or attacked by chavs... It feels I will be paying the cost throughout my life for the damage caused of past.. Thank You... Theres an old saying of learn from your mistakes and there are those who say some mistakes you should never make... Second how can inflation have been a surprise... you pump paper into an economy to try and use the excess capacity.. it is a nice idea.. but not working. I agree with below, stagflation it is.

36. At 2:38pm on 20 Apr 2010, writingsonthewall wrote:

"We cannot borrow more to stimulate demand - it needs to be capital earned"

We have consumed most of our capital without realising it: 'invested' in the illusion of real estate and pensions. Tinned food and gold is the way to go.

Hi Stephanie, which books would you recommend for visualisation of business data?

15. At 1:26pm on 20 Apr 2010, romeplebian wrote:

"so Im getting less than 1% on my savings and inflation is 3.4 mmm so I am technically losing money by being prudent, Im not putting my money anywhere near the rigged corrupt stock market or with any financial corrupt institutions.."
**
Yeah, but you're free to put it in index linked national savings. IN that way you will always get a positive real rate of return. Sorted.

Here's another surprise for you Stephanie....

https://news.bbc.co.uk/1/hi/business/8632855.stm

The IMF say "In a separate report, the IMF also said that government debt now posed the biggest threat to the financial system"

That has got to be the thickest comment ever - well doh IMF - considering the last 'threat to the financial system' - i.e. Banking debt, has now been taken on by the banks - what did you think would happen? - were you expecting it to vanish into thin air????

No wonder they don't realise they're running a giant Ponzi - they are truly idiots in idiots clothing.

It's time we got rid of these feckless moronic stormtroopers and replaced them with absolutely nothing.

P.s. they claim the cost of the crisis is less - well maybe it's because the brain cell shortage in the IMF hasn't noticed the numbers are valued in declining US dollars! - God give me strength to overcome the absolute absence of any thought applied at the highest level.

"56. At 3:49pm on 20 Apr 2010, nautonier wrote:

By the way - inflation is also fiddled by UK government - UK inflation level is higher than the official figures due to calculation methodology"

I marvel at the ridiculousness of the exclusion of house purchase costs from all calculations*. I mean, come on, seriously.


*- yes, I'm aware that mortgage interest is included

Darrin, I am not convinced that leading investors in the City are the best possible judges on economic outcomes following the general election. After all they did not see the train crash coming, did they?

31. At 2:25pm on 20 Apr 2010, Wardy29 wrote:

"Most capital values are overstated, but we're convinced that we're OK. We have fewer and fewer capital reserves that are actually of any use: ie. for producing goods and service that we need. At some stage our pound will be next to useless, imports will become too expensive and our phoney capital will revert to true values. Then we can start all over again."

...yes that was the historic plan for the old world - unfortunately we're in a new paradigm and in this world there is a 'race to the bottom' as the US, The Euro, the pound and the 'held down' yuan all race to be the cheapest.

Normally devaluation has the effect you described - but with all major currencies heading downwards off the back of loose monetary policy - there will be no winners in the race to loose.

This is also why we're getting bounces in the falling currencies as the specualtors sway from one to the other - but the overall direction is downwards for all of them.

How do I know? - because the price of Gold keeps rising. The value of Gold is unchanged, but the currency it's priced with is collapsing (the Dollar) - and we're collapsing against the dollar - so it shows how far sterling is tanking in real terms.

Sadly the lack of exports - and the lack of an export marker means all the old rules of devaluation have gone out of the window - along with sanity. All we are producing is a stagflation as our key import (oil) continues to rise steadily - not because the value is altering, but again because the oil is currently priced in dollars - which is falling.

Its all pretty simple really - it's only Economists that make it look complicated because they start getting all excited about numbers and forget to look at what is actually happening in the economy.

Soon there will be only 2 currencies of any value - Gold and Oil.

Prepare for the commodity boom.

At least the politico's and free market nincompoops can blame it on the ash cloud and not their total lack of understanding of their own system.

39. At 2:43pm on 20 Apr 2010, Mike3 wrote:

"The ORB research that Darrin, comment 20"

I took this from their website.

"Established in 1994, ORB has grown to become one of the UK's leading bespoke corporate and issues-led market research companies. In more than a decade of continual growth, we have worked successfully with over 150 clients in the private, public and voluntary sectors in over 80 countries."

Noticed they said "a decade of continual growth" - must be bankers then - everyone else knows it was a bubble and not growth at all.

These are people who can be safely ignored as they can't even grasp the basics of reality.

45. At 2:58pm on 20 Apr 2010, telw

There are no right answers in the inflation / savings / debts debate.

However your post did have some great stuff in it - please note all those "it will be alright" surrealists that the 80's was a far shallower crisis than this one (and there shouldn't be anyone to disagree) - and the conseuqences were:

1990 Oct 14.00% BoE rate

Now I know this was tarnished by being in the ERM at the time - however there are a lot of people reading this blog (and many more who aren't) who will be looking at that and thinking they couldn't stave off reposession at that rate.

That is where the crash lies - in that base rate. Don't be fooled into thinking the Government controls rates - the markets control rates and they have already started to push the buttons....

7. At 1:06pm on 20 Apr 2010, Mr T wrote:

"I imagine that the surpise isn't shared by the policy makers. This is an engineered theft. Inflation without wage inflation will impoverish the poor yet allow the asset rich to remain relatively well off."

I piddy da fool who disagrees with Mr T.

Amazing how when inflation fell from 3.5% to 3% last month, nobody said a word. But now it's gone up to 3.4% - still below 2 months ago - all the doom-mongers bleating for interest rates to go up have come out of the woodwork again. The last BOE Quarterly Inflation report was spot on and soon, after the post-election cuts and tax rises, DEFLATION will be here, so all the doom-mongers can go back behind the woodwork. Caledonian Comment

61. At 4:10pm on 20 Apr 2010, BerniM wrote:

"Hi Stephanie, which books would you recommend for visualisation of business data?"

I can recommend Derren Browns "Art of illusion" which will demonstrate exactly how business data is viewed by business.

I mean look at all the amateur scientists popping up all over the airline industry.
"I've done a few test flights - so it must be OK to fly"

Complete and utter fantasy from the gamblers den.

I agree with the majority of posts here - increased inflation is no surprise to anyone living in the real world. What with QE devaluing the pound, fuel and energy prices going through the roof and the supermarkets frantically putting up prices at the same time as reducing product sizes, I'm more surprised that inflation isn't even higher.

With wages being suppressed for the foreseeable future, this is obviously exactly the right time to re-establish the link to pensions (tongue-in-cheek).

The CPI was invented to show a lower figure than RPI was giving. Now that CPI is rising too, it must be time to invent a new one. How about FPI - Fudged Price Index.

Steph

But all of the first three versions of the GDP figures are based on output numbers, and those have still been consistently weaker than the figures for expenditure (one of the other ways to measure GDP).

=======================================================

So is it fair to say that the Government have been spending money like water to boost the GDP figures?

If so what is the outlook for GDP when all of the spending cut are pushed through?

post 66..

'Soon there will be only 2 currencies of any value - Gold and Oil.'

...3 actually, you are forgetting the Swiss-Franc...which is just how the Swiss like it...

Whatever the Complexion of Government we will have you can be very certain the RPI measure will be massaged as low as possible for the month of September thus defrauding all State and Company Pensioners of the rise due to them in the following April.

Stephanie.... concerning expectations, a key indicator has been rising persistently over the past several months, namely the difference in yield between conventional gilts and index-linked. This is now indicating on a simple basis (not risk adjusted) that the gilt market in its globally collective wisdom expects inflation of 3.5% on average going forward from now into the semi-forever. The figure was about 3.0% late last year.

#20

"* 77% think that a Labour victory or hung Parliament could lead to a downgrading of the UK’s sovereign credit rating
* 74% think that a Labour victory or hung Parliament could lead to a fall in the value of sterling
* 55% think that a Labour victory or hung Parliament could lead to a long term rise in interest rates"


To which we can add...

* 99% did not spot the sub-prime debacle

The City ... priceless.

Their opinions are worthless.

63. At 4:18pm on 20 Apr 2010, writingsonthewall wrote:
Here's another surprise for you Stephanie....

WOTW you are very contrary (some would say hypocritical)! Only last week you were referring everybody to a website regarding the managing director warning investors that global banks are still clueless. Today you are slating the IMF claiming they are idiots.

So does, this mean you feel that the IMF Managing Director is also an idiot, and so are his statements?!

This comment was removed because the moderators found it broke the house rules. Explain.

Inflation at 3.4%, yet most people with small amounts of savings are lucky to get 0.5% interest. What does that tell me? It tells me that the Bank of England is not independent. It gives more importance to the amount of economic activity regardless of the type of economic activity than it gives to the principle of Money having a Store of Value.

Which is a more Primary role of the Bank of England? To speculate on influencing the quantity of Economic Activity, or to act as the ultimate influence of the Store of Value that exists in Money? I think the influencing of Economic Activity should be in the hands of the DTI, the Treasury, etc.

The Bank of England exists to defend and define the Value of Money by protecting the supply, cirulation and distribution of money (and setting an interest rate is part of this). Is it doing this adequately? No. The Bank of England should start doing its job, or it should have its jobs taken away from its Governors and Committees.

It seems that the City is often surprised, so why are these so-called experts paid all this money when the public are better at predicting where financial measures are going?

I will only be surprised when the highly-paid help are not surprised !!!!

Stephanie wrote:

"Inflation has surprised everyone again. Is it a problem? The best guess is: probably not."

Maybe not if you're paid a nice comfortable salary by the BBC, which has an almost guaranteed income, which increases every year. For those of us who have a small amount of savings, but no longer have a job, it's actually pretty awful.

There's also a common misconception that people in debt benefit from high inflation. That's not true, unless their income increases at a higher rate than inflation. How's that going to happen with high unemployment and poor job prospects?

The ones whose income increases faster than inflation benefit at the expense of those with savings. But in the long run, even they don't benefit from high inflation, because no one saves any more so there is much less wealth to loot.

This comment was removed because the moderators found it broke the house rules. Explain.

#45. telw wrote:

Sorry me laddo, but valueless money is what is destroying and what has destroyed our economy. It gave us the bubble and then the crash and is now well on the way to a far more serious bubble (see house prices and share prices) - what will the Bank do when it cannot lower interest rates any more? It has already blown 350 years of relatively rational monetary management.

The buffoons who call themselves banking economists did this to us, and they have to go.

The facts are that interest rates are at an all time low (a 350 year low) and that is what has destroyed the economy - free money (admittedly for some, of the rich insiders and bankers) cannot go on, or capitalism fails - there has to be an operating market pricing mechanism for money and there isn't at present - all down to the fools.

You wrote:
“… if the recession was shallower than we thought - or the early months of the recovery stronger - then that would mean there was less spare capacity in the economy after all”.
Why have the Gloom-and-Doom assessments been so wrong? One explanation is that commentators didn’t want to believe that the November 2008 stimulii would work. Or that re-capitalising Britain’s over-indebted banks would work either.
British families know better. Whilst they gamely repeat newspaper ‘disaster’ headlines when asked by Polling organisations, they each believed they must be an exception. So they went shopping instead of crying ‘gloom!’. Spending the extra cash they found in their purses and wallets because VAT was reduced to 15% and mortgage rates were at record lows. And benefits were increased for those most likely to spend it all. Just as Keynes had said they would if spending was maintained by government.
Money supply didn’t drop, despite people and businesses doing their best to pay-down debt as media and (some) politicians said they should. So deflation was never likely.
Both the BBC and ITV canvassed for anyone with a miserable story to tell. Throughout the crisis. Not looking for typical stories, but anything that would support the Gloom-and-Doom presumption. Those morbid anecdotes have fed through into the political sphere and retailed with glee.
Prices are more robust because DEMAND IS MUCH HIGHER than predicted. Because families have gone shopping instead of believing the doom-merchants. The result is higher CPI inflation: that’s reflected in the long-term estimate implied by the yields on index-linked Bonds.
Pessimism doesn’t sell much. Especially when punters’ own experiences don’t tell them things are bad. Which may also be why Cameron lost his Poll Lead so easily. And, of course, explains why both M&S and Tesco are reporting big sales growths.
It’s such a miracle, even Chancellor Darling couldn’t believe it. But it’s becoming more and more evident that the UK economy has escaped the recession that’s hit Euroland sideways. Preliminary GDP figures due soon will be – as ever in a recovery – an under-reading of what’s truly happening. But we shouldn’t rely on numbers alone.
Get out to the shops! Observe the shopping bags and the bookings at restaurants!
Pessimism is why economics was labelled the dismal science. Get out more! Look around you! The UK economy is experiencing a miracle!

And remember children, growth based economics leads to inflation (fall in value of money) or war. Or both.

It will be a great day for the world, when economists and policy makers (including politicians) wake up to the fact that their forecasting is thoroughly unreliable and not scientific. Sure you can create fancy equations to drive your econometric model, but the complexity of the system is way beyond these crude efforts. Where did the BOE think the economy was going in 2007 to 2008? Wrong. Where did they think the economy was going in 2009-2010? Wrong. Then there is the thorny issue touched on by some other commentators on this link, namely, that the figures are manipulated by the government to play their song. For example, most people who are interested in this topic know full well that the official unemployment figures (U3) in the UK and USA desparately undershoot the U6 figures, which includes those who are unemployed but have given up looking. Presumably these people don't exist according to the government. Shame that a few of these politicians could not experience the reality.

re leftie 85:
You're right in one respect - the people have kept spending but maybe it's an ostrich situation - pretend it does'nt exist hope it goes away. They have lots of money to spend do they? or is it credit that's getting used up?
You might think credit is great but when the interest rates go up you leftie types will be looking after yourselves and the next guy can sort himself out.
What about the scrappage scheme - all those new cars sold for a £2k discount and the rest of the cost was, er, paid by credit. Again encouraged to spend money you aint got to keep the car industry going so Gordo can look like he saved the day and when it all crashes he'll be in opposition (he hopes) blaming some other party.

re 83:
Blimey another poster from Ilkeston! Never thought we derbyshire folk would respond to stuff en masse

Printing money equals lower exchange rate plus inflation.

Think I learned that at O level

Will you be equally surprised when it goes up again next month?

Recollect in January:

'Today's inflation figures surprised 'experts' and the BoE - this is just a blip. CPI and RPI will fall......'

Fast forward to today as RPI 4.4% which is what many follow not the politically idelaistic lower one...

'Today's inflation figures surprised 'experts' and the BoE - this is just a blip. CPI and RPI will fall......'

Spot a trend of denial here.

Wherever QE and subsidy goes so does inflation. Car scrappage scheme = inflationary effects. Public sector wage agreements = inflationary rather than deflationary effects. Hidden tax rises like petrol duty = inflation rises and so on. Not forgetting VAT of course with more to come on this one.

At some point - denail will have to give way to common sense and interest rates must rise.

When socialists bleat on about the poor just recognise the pensioners or those living off taxed savings who are now seeing 5-10% erosion annually to their standard of living.

Yes - inflation's great for debt - not so hot for savings and investment.

Those with mortgages should start to get a little nervous..........

And remember higher inflation = more job losses.........

What I take from all of this is despite the insightful comments of Stephanie and others the reality is it looks like nobody in current government or the BoE has a clue to what is going on re inflation.

BTW - excellent article in the New Scientist recently. Apparently we are only able to predict things like inflation accurately 30 days into the future.........Mmm - so much for control.

#Leftie

Can you tell me which parallel universe you come from as I wish to travel to it.........?

The gloom mongers are out n force.

A little bit of inflaiton is good for yer. Sup up.

The low level of inflation is further proof that the recovery is taking hold. Yes, restruarants are full and it seems half the country are still abroad on extedned holidays. Happy days!
Those calling for zero price increases are asking for an economic depression.
Yes, alittle bit of inflation also reduces the real value of debt, so that helps the eocnomy, including firms. Firms also hire again.
The claim that this low level of inflation impoverishes the old is tosh. Pensioners have done well over the years, state pensions are index linked. And as for savings, there is always index linked savings, so no problem there either.

Givne that the main source of inflationary presure seems to be commodities, esp oil affects the whole world is affected so there shouldn't be too much effect on our competitiveness. But if there is, then the exchange can take the pressure and we just all holiday at home.

Low level of inflaiton: what's there not to like? Time to grass over the runways I say.

And Brown says he is the best person to guide the country out of recession. Most of this inflation is down to his governments increase in fuel tax and their lack of control on property prices.

#91
"#Leftie

Can you tell me which parallel universe you come from as I wish to travel to it.........?"

No go Prof

All space ships grounded - ash cloud around planet

#93
"And Brown says he is the best person to guide the country out of recession. Most of this inflation is down to his governments increase in fuel tax and their lack of control on property prices."

======================================================================

Hmmmm. Dampen down house prices.

How will that help Brown get the middle class vote.

We are either in an economic improvement phase or this is the biggest dead cat bounce in history.

I suspect the latter.

I was fascinated when my pension company informed me that my index linked pension would result in no index linked rise this year.
Presumably they use an index that includes house price, luxury yachts?
When last I calculated my personal inflation it was 7%.
If the loss of income from bank interest is included the rate is more like 10%.

Just as an aside

Everyday items where I see inflation:

Food - definitely increased in last 12 months - would estimate about 5% though this is subject to individual choice.

Rail - increasing between 5% and 10% per annum

We already know about petrol which is about 25% up.

Car parking - around 5-10%

Newspapers - 10% - 15%

This doesn't seem to average to 3.4% does it?

In a bizarre week when Nick Clegg was likened to Churchill.
To quote Lord Kitchener from the last time Liberals held power;

YOUR COUNTRY NEEDS YOU!!!

Help support the £5,000 per second UK borrowing requirement by buying Index-linked National Savings Certificates backed by the treasury which are paying:-

RPI 4.4% +1%

5.4% for non-taxpayers
6.75% for basic rate taxpayers
9.00% for higer rate taxpayers AND
10.8% for bankers..sorry..50% taxpayers.

Some people seem to think that a little bit of Inflation is Ok and better than a Deflationary period where lower prices would result in more realistic property values. Just because you and your estate agent hope/think your house should be valued at £400,000 doesn't mean that you are going to get any buyers except for a mug punter. I think real things (commodities like food, oil,gold) will be more expensive to buy wheras debt linked purchases (property/cars/stuff I can't really afford)will become more affordable (in terms of exchanging for 'real things' mentioned above. Whether or not it is going to take more £'s to buy a house or other debt linked asset in future is hard to say. However the only way for interest rates to go now is up so the debt will be more difficult to manage. This is as true for Sovereign debt as personal debt. What will happen when Sovereign and personal debt payments become unmanageable? A currency crisis/devaluation.

92. Free_the_Monkey wrote:
"The low level of inflation is further proof that the recovery is taking hold."

Umm, I thought inflation was rising or did I misread Stephanie. Higher inflation is normally a sign that supply is tight or costs are rising? Is that good?

......"The claim that this low level of inflation impoverishes the old is tosh. Pensioners have done well over the years, state pensions are index linked....."

You try and live off a State Pension of around £6400 a year. You can't even get daily monkey nuts for that. As for Index Linking that presumes a Pensioners costs are the same as the RPI/CPI. Not true - they are usually in the higher inflation sector because of what they buy. Also if you are a pensioner in a bigger house, I can tell you except for this year, Council Tax has more than wiped out any gain.

"Given that the main source of inflationary presure seems to be commodities, esp oil affects the whole world is affected so there shouldn't be too much effect on our competitiveness."

Err, oil is priced in dollars. Two years ago our rate vs the Dollar was $2 to the pound. It's around $1.53 now. China and the Far East are linked to the Dollar. Doesn't affect them as much as it affects us. I tell you what, the fuel price increases are really making a difference.
I spent some time in France and fuel is much cheaper here.

However inflation seems higher in France. On a straight comparison many items such as meats, toiletries and basic items are more expensive than the exchange rate would warrant. Is it because our retailers are more competitive? Nothing to do with recovery.

You need to go the Sp*csavers and change your rose tinted glasses!