Inflation will Rise on Bank Policy

Inflation will Rise on Bank Policy.

Well there's a surprise, academics and economic commentators are waking up to those small little words in the Chancellors Budget speech in March.

We noted in Mr Osborne's budget speech that he was giving the Bank of England a "progressive" target for inflation and raised it at the time that this was a sign that the government will allow inflation to rise.

What is a progressive inflation target?
If the target for inflation is 2.5% then now the Bank of England must be seen to be progressing to this target.  In simple terms, they can consistently miss the inflation target as long as they are progressively working towards it.

New Bank of England Government Mark Carney
In some of his opening comments when taking over at the Bank of England, Mark Carney suggested that the UK should not manage its economy based upon inflation and should move away from inflation as the benchmark.

Why are they doing this?
We suggest that Britain has record public sector debt as does the US and most of Europe.

There is no chance whatsoever of countries being able to repay their debt.

Therefore the only way to reduce the debt is to devalue it. How by allowing inflation to gradually build and reduce the debt in real value terms without ever repaying it.

What does this mean for our future?

Prices will continue to rise.

Salaries will rise.

Property values will go up artificially (you only have to look at the government stimulus in the housing market to see this happening).

What is the precedent?

You only have to look back to the 1980's and Thatcher's Britain.  Recession then boom (do you remember yuppies?) and then interest rate rises to 16% in the last eighties (do remember 15% mortgages?).  We expect the same over the next 10 years.

Inflation will continue to be high and we believe it is by design rather than an anomaly.