Inflation is a real and present danger

One novel side effect of writing a blog is that certain topics, about which one’s passionate, get returned to on a regular basis, and that you can read your earlier words. It’s not crime, the state of the NHS, or our weather that seems to regularly grab my attention. It’s our economy and more importantly, inflation.

Many economists, though not all by any means, consider that the Bank of England’s quantitative easing [pumping money into the economy to ward of recession/depression] is inherently inflationary. The two shades of opinion, Liam Halligan for, David Blanchflower not, I’ve discussed HERE. Last November I was taken aback at alarmist talk by some senior city types predicting high levels of inflation.

However, there wasn’t much widely available evidence on inflation forecasts, outside of the Bank of England. It’s good that Fraser Nelson, in the Spectator, noted the Citibank report – Sterling Weekly: Inflation Uptrend Continues, predicting a steep rise in inflation in 2010 towards 4%. The report says:

“We expect CPI inflation to rise close to 4% in mid-2010, with RPI inflation probably going well above 4% Year on Year this year.”

Key reasons for this, they say, are the weak pound and resultant higher import prices. They also say that their prediction doesn’t include the upward pressures on food prices from the recent cold weather in the UK and Europe.

Ok, is this a lot of hot air? No, inflation is on a definite upward trend. This will create problems for a post-election government trying to implement policies that freeze public sector pay rises and cut government spending. This is why it’s vital that the electorate understand this before they vote.

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