UK Inflation Forecast 2011, Imminent Spike to Above CPI 4%, RPI 6%

smeagold

The VAT time bomb that has been ticking for the whole of 2010 exploded on 4th of Jan 2011 that will now likely result in an surge in Inflation to above 4% CPI and 6% RPI as I anticipated over 8 months ago during the general election campaign (05 May 2010 - Greece Economic Depression Resulting in INFLATION NOT DEFLATION Surge )
A post UK election VAT hike to 20% from 17.5% is near certain to bring in extra revenue of about £13 billion per year. This will have the effect of both spiking inflation sharply higher and maintaining the ongoing longer-term inflationary mega-trend, therefore I would not be surprised that following the implementation of a VAT tax hike that CPI spikes above 4% and RPI as high as 6%! Which would further discredit the Bank of England's mantra of "Don't Worry Folks its Only Temporary".
I wonder how many ordinary UK citizens will still continue to believe the Bank of England's statements of temporary high inflation when they see Inflation of CPI 4%+ and RPI 6% in a few short months. Will they still be willing to accept wage hikes of 2% or even freezes, or will they start to demand ever higher wage rises to match surging inflation and thus feed the the wage price spiral, especially as real UK inflation looks set to break above 8%



http://www.marketoracle.co.uk/Article25637.html

Any ideas on how to preserve the purchasing power of your money going forward? Any investing strategies? (I won't say how I'd protect my savings as you can prob guess that)

Masomnia

I don't see how the VAT increase is going to cause VAT to spike.

Jan '09 to Jan 10' increase in prices due to VAT was 2.5% (being very simplistic but you get the point), as it increased from 15% to 17.5% over the period.

Jan '10 to Jan '11 the increase due to VAT will be 2.5% again as VAT increased from 17.5% to 20%.

So the percentage change in prices due to VAT will remain unchanged.

Surely?

shaven-monkey

The VAT hike is not the only inflationary pressure.
Food price increases due to poor harvests and increased demand probably have more effect than the VAT hike but those are "out of our control" so let's focus on VAT.
Well, higher inflation with a static base rate means a steady devaluing of your debts... so that's good isn't it?

smeagold

Masomnia wrote: »

I don't see how the VAT increase is going to cause VAT to spike.

Jan '09 to Jan 10' increase in prices due to VAT was 2.5% (being very simplistic but you get the point), as it increased from 15% to 17.5% over the period.

Jan '10 to Jan '11 the increase due to VAT will be 2.5% again as VAT increased from 17.5% to 20%.

So the percentage change in prices due to VAT will remain unchanged.

Surely?

No Idea Masomnia but Wallayat seems pretty convinced. I followed all his analysis since 2008, at first I hated him but now I respect what he says as he's almost never wrong.

here's his advice for capital protection:

The Bank of England is going to keep printing money which is a positive for asset prices such as stocks. For investors the strategy remains to invest in inflation wealth protection and growth such as agricultural commodities, gold, silver, metals and mining, TIPS, emerging economies such as China, India, Russia, Chile, Brazil, and developed economies such as Australia and Canada as their appreciating currencies will protect your investments purchasing power in sterling

Oh look my favourites are on the list:)

Masomnia

smeagold wrote: »

No Idea Masomnia but Wallayat seems pretty convinced. I followed all his analysis since 2008, at first I hated him but now I respect what he says as he's almost never wrong.

Certainly seems more accurate than the old lady, but then Paul the Octopus would probably have done a better job than them!

SnowMan

Smeagold says gold model of the sadly deceased Paul the Octopus is prediction from beyond the grave

smeagold

SnowMan wrote: »

Smeagold says gold model of the sadly deceased Paul the Octopus is prediction from beyond the grave

wish I had one of them

StevieJ

Masomnia wrote: »

I don't see how the VAT increase is going to cause VAT to spike.

Jan '09 to Jan 10' increase in prices due to VAT was 2.5% (being very simplistic but you get the point), as it increased from 15% to 17.5% over the period.

Jan '10 to Jan '11 the increase due to VAT will be 2.5% again as VAT increased from 17.5% to 20%.

So the percentage change in prices due to VAT will remain unchanged.

Surely?

Actually the 2011 Vat increase has a slightly lower effect on the annual inflation rate. i.e.

120/117.5 (coming in) is lower than 117.5/115. (being dropped)

Reaper

smeagold wrote: »

Any ideas on how to preserve the purchasing power of your money going forward? Any investing strategies? (I won't say how I'd protect my savings as you can prob guess that)

Shares ought to keep up with inflation too, though the results can be patchy. Companies which are able to pass on inflationary price rises are the least affected such as utilities, supermarkets and train companies.

lvader

The VAT increase can't cause an increase in inflation, inflation was due to go down had they not increased it again. Inflation could go a bit higher due to increased commodity prices but I doubt we will see 6% RPI this year. Core inflation is about as low as it can be without deflation.

neil324

StevieJ wrote: »

Actually the 2011 Vat increase has a slightly lower effect on the annual inflation rate. i.e.

120/117.5 (coming in) is lower than 117.5/115. (being dropped)

What about the devaluation of Sterling which should have filtered out the YOY figures now.

The excuses are starting to wear thin.