There is new inflation data out this morning from the Office for National Statistics. This is their chart for CPIH inflation:
I am, of course, well aware that only the ONS prefer this measure to CPI, but the trend in CPI, which also went up by 0.1% in January, is similar, albeit that it is overall 0.6% higher.
Why comment on this? Simply to note the trend, which suggests that a peak is being reached, even if we are not quite there yet. As I have suggested for some time, this was always going to happen, most especially given this trend:
A year ago fuel prices were in negative territory. Any increase was going to have a significant impact on inflation in that case. And it has, as is obvious.
But so too have letting costs and the costs of property ownership had a big impact, as does council tax, which for these purposes is considered a cost and not a tax payment.
It's almost as if we had an officially engineered inflation resulting from increases in tax, interest rates and regulated prices.
I hate to be a cynic, but to what extent has this inflation bern desired by those who wanted an excuse to raise interest rates? It is a question worth asking, because some have been desperate to do so for so long. Do not also doubt that some have also been as desperate to reimpose austerity.
That question will also be worth asking as the year progresses and the inflation rate falls, which as a near mathematical certainty it most likely will. Why those rate increases were required will then have to be asked.
That we have a rate of inflation that at least in part might have been desired by some, and which has been engineered by some incompetent economics, is a possibility to be mused upon.
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From what I’ve seen since 2010, let’s just say I wouldn’t put it past any of them to be honest.
Possibly….. but if in doubt “cock up” rather than “conspiracy” wins as the best explanation. However, your points about the data are well made.
What annoys me (well, lots of things annoy me……but today it’s this) is the statistical ignorance of those that should know better.
First, “change” and “level” are not the same thing. Given the shocks to the system it might be more appropriate to look at the absolute level of an index compared to some base point (pre pandemic) rather than YoY or MoM changes which have been particularly volatile. (This applies to GDP in particular but more generally, too).
Second, looking at YoY changes on a monthly basis is dangerous. The fact is that prices in January FELL (114.7 to 114.6)…. but you would not get that from the newspaper headlines. Yes, I know there is seasonality… but my point still stands – data needs careful handling, particularly in volatile times.
Agreed
Or to take an extreme example.
If prices start at 100 and in one time period drop to 50 that’s a 50% fall.
If they then rise again in the next time period from 50 back to 100 that’s a 100% increase.
Well of course it is a conspiracy to increase interest rates across the western economies which will come out of the QE asset price inflation – time to pocket that unearned wealth increase and park it in some long term high interest bonds …
There is no case for price rises by consumer goods and service suppliers. They have massive increased profits already and their wage costs have not gone up. There is still plenty of unemployment and more to come.
There is no classical case for interest rises at all to control inflation which is imposed by cartel.
Like Pilgrim I wouldn’t put it past them. But I suspect more cock-up than conspiracy this time.
The combined effects of abysmal energy strategies and the impact of COVID on supply chains have brought us here. But any half-decent strategy and contingency plans should have provided more resilience. A better Green renewable energy strategy coupled with more local sourcing and less reliance on Just In Time systems (which inevitably turn out to be Not Quite In Time when any turbulence hits) will help going forwards. We just need a Government with a bit of vision.
I am not sure
The adjustments Sunak is putting through for electricity and gas prices could have reduced the inflation measure
I am not convinced that they will
There might be a reason for their design…..
I think first and foremost policy makers believe a growth in the money supply and inflation and an inverse relationship exists between the growth in the money supply and interest rates and it is this which drives higher interest rates globally. Policy makers are terrified of inflation.
Not so sure you (or the government) are right on this one. For me inflation is now likely to continue because of structural factors. Even a sharp UK recession, (which the Tories seem determined to bring about) will do little to check this.
1) Housing inflation persists because the market has consistently undersupplied new builds and government have failed to compensate by investing in social housing on the scale needed to keep prices in check.
2) Climate Change is already impacting Global production of many foodstuffs, such as coffee. Thus will only get worse as we race past 2’C of warming. This could leave a growing Global population chasing a shrinking pool of natural resources.
3) Global demand has expanded rapidly with the emerging middle class in Asia. In the early 2000s Chinese growth was mostly export driven, so cheaper labour costs actually created deflation in price of manufactured goods for Europe and USA. But that “one off benefit” is now gone. Asian growth is increasingly driven by domestic demand, and Asian consumers are now competing for the same Global resources that used to be exploited just for the West.
4) Big Oil lies delayed us 40 crucial years in switching to renewables. Now we need to make a rapid shift in crisis mode. Long term we will get the benefit of “free” solar and wind power year after year, but right now we have to make massive investments in new infrastructure which will only add to pressure on Global supply chains.
As I said to start with, its hard to see any of these pressures easing ieven in the medium term. And since most of the drivers are to do with Global supply and demand, changes to UK domestic interest rates are likely to have little power to control Global price inflation.
Let’s see
Hmmmm – be careful about house price inflation and its causes. It’s not just a lack of supply, the problem has been builders supplying the wrong homes – more executive homes than affordable ones which of course increase profits for the builders and inflates average prices if I remember a report by the University of Sheffield pointed some moons ago.
Thank you Mr Bruce, and interesting perspective.
I am less than convinced by this argument – first you suggest a degree of competence in the government that hasn’t manifested itself in anything that I have seen. And second, the current iteration of our ruling party is showing its customary ambivalence towards the plight of the workers, but an even greater than usual enthusiasm for handing generous public sector contracts to family and friends. Wont the enthusiasm for the latter trump the former?
You really are misunderstanding the scale of the abuse
It’s big, but really not that big
Christ Almighty
I’m watching Tory MP and Treasury Committee member Kevin Hollingrake being interviewed on C4 News and he is saying that inflation is being caused by international markets.
He has stated that we are in a ‘closed loop’ system and that tax payers don’t want to bail themselves out of the cost of living crises. The tax payer will be paying for any relief of their problem. That is what he has just stated.
What to say! ? He thinks that there is nothing the Government can do.
So then – why do we have to have a Government with over 600 people on £80K+ a year who………………..can’t do much to help us.
Hmmm……….this Government is going beyond parody.
To me – I share Richard’ s cynicism. Let’s say I sceptical – I’d like to se a higher level of proof about what’s going on except that I suspect that I’m not clever enough to spot it.
But I do think that we are being played somehow.
I just concluded he was stupid
An extraordinary interview with Kevin Holinbroke MP (Conservative) on C4 News; he tells us the inflation problem is nothing to do with the Government and is down to ‘market forces’ (these are the same market forces that Neoliberal Conservatives keep telling us is the only answer to everything), and when Krishnan Guru-Murthy pointed out his Party was in Government, he asked Guru-Murthy what answers he had. Guru-Murthy gently pointed out that he was the interviewer, he wasn’t in Government. It seems there is not a single Conservative politician who is not transparently far, far out of their depth. Twelve years in Government, twelve years of austerity that has destroyed the NHS, failed to invest in infrastructure, protect people from poverty, and revealed a catastrophic failure to establish and manage a coherent or resilient national energy policy; drive by the utter farce of ten years of austerity that undermined the economy, failed to eliminate the deficit; that for some comic reason they thought they could wish away. under their hopeless leadership, which did not transform the economy because they invested only in asset bubbles and undermined the nation’s economy, security and finances; and then if you recall (in a slapstick denouement even the Marx Brothers would not have dared attempt), declared this total failure so spectacular a success, they had created the “end of austerity”. They had feiled their own measures of success, but this is Conservatism. Defeat is Victory in the Conservative, media-backed fantasy world. Now they are trying to tell us the end of austerity isn’t ehm …. the end of austerity after all.
The Conservative solution in whatever sound-bite you hear; this is the translation into practical English: “its nuthin’ to do with me Guv, I’m just the Government. We run boozy Parties and ooze bumbling, shifty charm; and when the electorate complain, we blame everyone else, sack a few dispensibles, and trash our institutions. In everything else – you are on your own. You fix it. What do you want from us? We only do Entitlement. We just insist in being in office.”
You can apply that to everything you are going to hear, on absolutely everything.
It was pure farce
Well said John Warren – a reference level summary of Tory stupidity and mendacity.
Last night in Derbyshire, we had gusts of wind that made the house lights flicker – I thought we were going to lose supply and dreaded having to tussle with the energy suppliers who are not suppliers but endless middle men to get it back (as you did).
At one stage the wind and rain was so dense, I could not see across the street or the valley wall behind! It looked like a wall of rain. Incredible.