Inflation

Grant Shapps has impressed in the housing brief, arguing that house prices rising faster than wages is not a good thing (with which Policy Exchange’s report, Making Housing Affordable, agreed). He has probably been encouraged by the fact that some recent polls have shown even a majority of owners want prices to stop rising. Perhaps having your kids live with you until they are 40 just isn’t a popular option? More so, rising house prices only benefit those who downsize (now rare) or own multiple properties; and in the wider economy it mostly discourages productive investment and encourages borrowing – hardly good things.   But while Shapps’s aim is laudable,

The Spectator is out today, with a cover story that I would commend to CoffeeHousers. Failure to learn from history usually condemns a nation to repeating its mistakes. That’s why we should be nervous that no one seems to have worked out what caused the crash. Little wonder: the guys doing the analysis are the same guys who failed to spot the crisis building up, so it suits everyone to blame the banks. “How was I to know,” says everyone from Gordon Brown to Joe the Pundit, “that they were doing all these complex debt swap thingies? They deceived everyone, the bounders.” There is another analysis – and it’s our

Déjà-lu is a feeling that Spectator subscribers become familiar with. Part of the reason for subscribing (which you can now do from £12, including free iPad access) is to get ahead of the competition – and read today what the newspapers will be saying tomorrow. We’re delighted that the cover story of Thursday’s edition, by Allister Heath, is the main OpEd slot in the Daily Mail today – and with good reason. All of the focus has been on the cuts, 500,000 jobs to go etc. As CoffeeHousers know, jobs are not expected to be the issue over the next few years: the same forecasts suggest 1.5m jobs will be created.

I hear that the Department of Transport’s settlement is another one that is not as bad as expected. The capital statement is, apparently, positively reasonable. George Osborne’s commitment to infrastructure spending has meant that a good number of transport projects have been saved. On rail fares, I hear they will indeed go up significantly. But not by as much as the doomsday 30 to 40 percent scenario reported in the Sunday papers. Nearly all the settlements we have heard about so far have been less bad than expected. There must be, given that Osborne is sticking to the cuts schedule set out in the budget, some departments that are going

John Redwood has entered the debate with a unique argument: spending isn’t being cut. He points to figures in the Budget which show “current” spending rising from around £600 billion now to around £700 billion in 2015. As Alex says, that suggests an increase of 15 percent over five years – hardly what anyone would describe as a cut. And there’s a similar picture for “total” spending, which will rise from around £670 billion to £737.5 billion.   Yet it’s worth pointing out that Redwood isn’t using inflation-adjusted figures (aka, “real terms” figures). If you do that, then there are cuts to be seen in both current and total spending:

Even governors can be wrong. The Bank of England’s quarterly inflation report is expected to downgrade its original growth forecasts and predict a sharp increase in inflation, albeit one that peaks this year and returns to the target rate by 2012. A spike in inflation is scarcely surprising given the planned VAT rise, and the Bank’s original growth forecasts were, like Alistair Darling’s forecasts, absurdly over optimistic – predicting 3.4 percent growth next year and 3.6 percent the year after. The Bank’s revisions needn’t trouble George Osborne, whose forecasts of 2.3 percent growth next year and 2.8 percent in 2012 were drawn from the OBR. However, the OBR may have

Only a week into his new job, and George Osborne has already had to exchange letters with Mervyn King about inflation.  And here’s why: the CPI index hit 3.7 percent in April, up from 3.4 percent in March.  Which is worrying enough when looked at in isolation – but when put alongside headline rates from other countries, it becomes damning.  In China, it’s 2.8 percent.  In France, 1.9 percent.  In Germany, 1 percent.  In the Eurozone as a whole, 1.5 percent.  And in the US, 2.3 percent (for March, with the latest figures out tomorrow).  Indeed, thanks in part to quantitative easing and the removal of the VAT cut, inflation

As Mark Bathgate and Fraser warned, the economic crisis now has an added dimension: inflation. The government’s preferred marker, the Consumer Prices Index (CPI) rose to 2.9 percent in December from 1.9 percent in November, which as Andrew Neil notes is the biggest monthly rise in the annual index since records began. And the Retail Prices Index (RPI), used to calculate welfare payments and wage re-negotiations, rose to 2.4 percent from 0.3 percent. The underlying RPI rate rose to 3.8 percent from 2.7 percent.  We are now seeing the long-term effects of Quantitative Easing and the use of debt to finance further government borrowing. A consequence of printing money is

Oops! Britain’s inflation is heading back to 4 per cent territory ­ as you’d expect with the Bank of England printing money and using the debt to finance government spending. If you create more money, you reduce the value of the money. Citi has done another brilliant research note, which it is putting online, laying out the implications. The punters are facing pay freezes, or settlements below 2 per cent. The cost of living is soaring. Result: misery. Here are the two graphs from Citi that spell it out. First, inflation (much affected by the VAT hike ­ in the same way that it was artificially reduced by the VAT

The inflation surge is now upon us. The CPI rate again “surprised” to the upside – Britain is the only major economy in the world to have inflation doing this. But given that the Bank of England’s printing presses have been working overtime to fund a fiscally irresponsible government then little wonder things are different here. To understand just how unusual the UK situation is, consider the below graph: despite suffering the longest recession in G20, we have one of highest rates of inflation in the developed world. The next few months will see this push higher, potentially reaching 4 percent in March and busting the 2 percent target. Without

What with his new column in the New Statesman and his articles for other outlets, David Blanchflower – a former member of the MPC – really does seem to enjoy laying into the Tories.  Problem is, much of what he says fails to convince – so much so, in fact, that I thought I’d bash out a quick fisk of his Guardian article from last Friday.  Here’s the full article with my comments in bold: We are in the midst of the worst recession most people alive have ever experienced, or will probably ever experience. It is already worse than the 1980s and it isn’t over yet. The only comparison