Appearing before the Treasury Select Committee, King said the central bank's last forecast round in February did not anticipate the 'very striking' rise in gas prices.
'The increases in gas prices which were announced recently are likely to push inflation over the target in the short term, and erode the purchasing power of household incomes thus slowing the growth of consumer spending,' he told the parliamentary committee.
Underlying price pressures, however, remain stable, he added.
Ha!
Meanwhile, BoE deputy governor, Rachel Lomax, was puzzled about the modest levels of business investment in the UK despite a period of high profit growth.
Umm, yes I think I will build a plastics factory in the UK, yes that sounds like a good idea, if I start now I'll be ready to really get going next winter.
I am finding it hard to understand how the energy price increases of the last 18 months haven't fed into the inflation figures yet. Even if you just consider petrol/diesel/heating oil/gas/electricity price rises - never mind the knock-on effect to everything else we buy!
Lots of talk of manipulated figures going on in the US. It wouldn't surprise me if manipulation was taking place here either.
Thinking about it - it just doesn't make any sense at all!
I have thought for at least the last 10 years that governments have systematically manipulated inflation figures downwards. The price that oil has to get to before the inflation genie gets recognised as being out of the bottle is probably going to be around the $90-100 mark the way the present statistics are manipulated. However since we are $66 in March when oil prices SHOULD be near their annual low point I think there is every reason to believe that $90 is now likely to be hit at some point this year. Its also worth noting that oil price rises take a while to work through the system (up to a year). I see the BoE has suddenly started to make uncomfortable noises about inflation again.......
Interestingly the cost of petrol in NZ hit what I believe is a 20 year high today at $1.57NZ a litre - thats up about 20c in the past 2-3 months, though largely off the back of a plunging NZ$. Inflation here is above the BNZ upper limit of 3% (at 3.2% I believe) and it will be very interesting to see how the latest surge is picked up in the inflation figures (or not - )
In our little village convenience store, we have new prices coming in every week both up and down. Interestingly since the beginning of the year I have noticed the trend to be more up than down. Some major suppliers such as milk and bread have been sending letters to announce their price increases much of which they are blaming on increased energy costs. I think it really does take time for it to filter through to the customer and that we will see inflation going up gradually over the next few months.
Of course inflation figures are very dependent upon what is in the basket of goods measured. I understand recently some basics have been taken out and replaced by things like Ipod's. We'll all really need one of those in the future to listen to, whilst we dig our allotments!
For an outstanding example of the broad and pervasive manipulation of economic parameters by the government, take a look at this fascinating interview with economist John Williams. Williams shows how, for at least the past 25 years, the government has systematically manipulated the most fundamental of economic parameters such as the Consumer Price Index (a measure of inflation), the unemployment rate, the growth rate of Gross Domestic Product, and more. This isn't just a case of minor fudging of the numbers--Williams provides a compelling argument, for example, that current US unemployment is currently over 12% (compared to the reported 4.6% in Jan. 2006), that the CPI is actually around 7% (compared to the reported 4% WITH energy prices included), and that the US economy actually shrank 1.9% in the last quarter (compared to the official, and already alarming "rise" of of 1.1%). Take a look at Williams "Shadow Government Statistics" site for more.
I would love to have some input from an economist who understands these things. I have seen it stated that inflation can't exist without fresh money being printed. However surely it is possible to have inflation in one area of the economy and deflation in another. E.g. increasing food prices and other necessities such as heating oil and gas, whilst having decreasing prices in luxury goods such as ipods, computers e.t.c. ?? Is this what is currently happening?
Investment:
The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.
Economics:
A general increase in prices.
Inflation results from an increase in the amount of circulating currency beyond the needs of trade; an oversupply of currency is created, and, in accordance with the law of supply and demand, the value of money decreases. Deflation is brought about by the opposite condition.
Whenever Gordon Brown mentions his "prudent policies" has kept "inflation in check", he means money isn't being printed, not that prices are going up due to scarcity of a commodity (let's say, oil & gas), or that prices are going down on other commodities (e.g. crappy overpriced tat from Next) because nobody has enough of both disposable cash and desire to consume.
My own view of inflation is that the numbers are always understated, I am more familiar with US numbers where for example substitution occurs if the price of something goes up too much eg pork for stake. Hedonic adjustments are made eg the prices of computers are reduced because they are faster every year.
The only honest measure of inflation is the increase in money in the economy less real growth, most countries in Europe have a money supply increasing at 8% to 10%, if you assume real growth is 1% to 2% then the real rate of inflation is 6 to 8% a year. The natural order for ?things? is that they should always be going down in price due to efficiency or flat if they are old technology. Property should never go up faster then incomes or population growth on average so the price of a house doubling in 3 years is not captured in the inflation numbers even though it increases the cost of living for 1st time buyers.
The main reason we have inflation today is because no currency is on the gold standard
It matters to TPTB because the lower the reported inflation number the lower the increases in pensions, social welfare payments, civil servants salaries. It also artificially increases the GDP number as inflation is normally netted off so the lower the number the better GDP looks.
Higher energy bills will push inflation up to 2.3% between April and June as firms are forced to absorb the hikes by increasing their prices, a report says.
The figure, in a survey by accountants BDO Stoy Hayward, is above the 2% target set by Bank of England for consumer price index (CPI) inflation.
Last week, Bank of England governor Mervyn King said that continuing high UK energy prices could force up inflation, and may pose a threat to the economy.
He told MPs that recent rises in UK energy prices would push up short-term inflation, erode the buying power of household incomes and slow the growth of consumer spending.
Bwaah Haa Haa, It's all proceeding exactly as anticipated...
)
