In his highly entertaining press conference yesterday, Ed Balls referred to “low inflation.” Today’s inflation bombshell makes such a claim impossible. Against expectations of 2.6% CPI for April, the figure is 3% – the highest rise in six years. This is hugely political. The cost of living is top doorstep issue – so it’s important to establish why Gordon Brown speaks with forked tongue when he blames it all “global turbulence”. Today’s inflation report repays closer examination. My thoughts:-
1) Plunging pound. Since Brown took over the pound has nosedived and is now 12% weaker in general – literally Black Wednesday magnitude. Who’s to blame for that? Opec? Bush? Brown has suffered so many other disasters that no one has commented on this huge inflationary pressure. Factory gate food and drink imports are actually up 15%, so worse is to come.
2) Soaring Food. As Gordon Ramsay will tell you, we import plenty food nowadays – so the currency woes magnify global food price hike for British consumers. Result: CPI food price inflation is a shocking 7.2%. This is what people feel and experience when they head to the supermarket. This will get much worse – as I blogged on Trading Floor yesterday we’ll be in double-digit food price inflation by next year.
3) Services. UK service cost is 3.7% says today’s CPI – yet only 2.8% in the Eurozone. Why so much higher? This is largely a reflection of growing labour costs in Britain. Jack up regulation and employment taxes and this is the result over the long term. As I said yesterday, companies don’t pay tax. Only people do. Service costs shows how regulation is a form of taxation.
4) Tax. Of the 108p a litre petrol, 72p of this is tax. Brown bangs on about OPEC, yet he could bring the UK’s petrol prices (and diesel prices, second-highest in Europe) down with a click of his finger. Americans pay 45p a litre for petrol. That we do not is due to decisions made in Downing Street.
5) CPI v RPI. Let us never forget Brown unleashed a new era of inflation when in Dec03 – the beginning of what I call his “reign of error” – he swapped the RPIX 2.5% target for CPI of 2.0%. It was based on the false claim that the difference between these two indices would be 0.5 points, when it’s twice this. Effect 1: interest rates were set too low, triggering a cheap credit boom and fuelling a housing bubble, now bursting. Effect 2: the media started hoodwinking readers, by using CPI as “inflation.” Since 1948, the public have known RPI as “inflation” which is why no one believes the data now. RPI(X), which one might term “real inflation” is now is 4.0%.
Now and again, Labour MPs ask: how much worse can it get? The answer is: much, much worse. If they think cost of living is an issue now, just wait until next year. And then see who in the Cabinet the public blame the most.
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