Inflation Hits Bank of England Target

The above chart shows the Consumer Price Index over the last 5 years – the Bank of England is mandated to target 2%, a target it has not hit since 2013. The fall in the pound has imported inflation, raw materials in particular are up some 20%. Expect to see a lot of doom and gloom in the FT about about inflation outstripping wages and hitting Brexit voters. Up to a point…

This currency hit to inflation is a one time hit, it will fade with time. As the chart above shows in red, inflation has been below the target for 5 years, with the governor of the Bank of England making regular excuses in letters to the Chancellor. This was Mark Carney last year:

“The underlying causes of below-target inflation over the past two years have been: sharp falls in commodity prices; the earlier appreciation of sterling; and, to a lesser degree, the subdued pace of domestic cost growth.”

The underlying cause of the rise in inflation today is, conversely, rising commodity prices, the fall in sterling and the stronger than expected economy. The recent period of food price deflation was not normal. By 2019 the currency effect on inflation will have faded. If of course the economy was to go down the pan as Project Fear warned, inflation pressures would fall…




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