Tuesday, November 16, 2010

Bank alert as inflation creeps up to 3.2%

By Adrian Lowery
16 November 2010, 10:06am
Inflation crept up to its highest in four months in October at 3.2%, leaving the Bank of England again to explain why the rate is so far above target.

Go to Market data

The consumer prices index rate of inflation has been at 3% or above every month this year and was last below the 2% target rate in November last year.

Analysts had expected the CPI figure to remain unchanged from September at 3.1%, but the Government's fuel duty rise on October 1 caused the increase, according to the Office for National Statistics (ONS) data.

As well as soaring costs at the petrol pumps, upward pressure also coming from financial services and toys, which outweighed an easing back in annual food price inflation.

Bank Governor Mervyn King must write a letter of explanation to the Chancellor each time inflation comes in one percentage point or more above the 2% target rate.

While the Bank's monetary policy committee will be nervous that the October figure has edged up, it is largely in line with the projections contained in its November quarterly inflation report.

'The Bank of England will be far from happy with the October consumer price inflation data,' said Howard Archer of IHS Global Insight, 'but it is unlikely to prompt a near-term interest rate hike.

'However, the data are likely to reinforce the Bank of England's reluctance to re-engage in quantitative easing for now at least.'

Inflation looks likely to head back up towards 3.5% over the next few months due to higher food, commodity and energy prices. Utility prices are rising, with British Gas to raise its gas and electricity prices will rise by 7% in December.

Moreover, value added tax will rise from 17.5% to 20.0% in January, although this may not push the annual inflation rate up given that there was also a VAT hike in January 2010 (up to 17.5% from 15.0%).

But Mr Archer said inflation should move below 3.0% in the second half of 2011'as the temporary upward impact from higher energy, commodity and food prices, and sterling's past sharp depreciation wanes'.

'Meanwhile, underlying inflationary pressures should be limited by excess capacity, muted growth, strong competition on the high street, and high unemployment. Inflation will hopefully dip below 2.0% early in 2012 as the impact of the January 2011 VAT hikes drops out.'

Retail prices index (RPI) inflation - which contains a bigger share of housing costs, and is used to calculate many benefits payment and pensions - fell slightly to 4.5%, down from 4.6% a month earlier.

Read more: http://www.thisismoney.co.uk/news/article.html?in_article_id=518293&in_page_id=2#ixzz15UZoBSru

Editors Note: As i predicted in my Oct 29th newsletter inflation is now picking up at the consumer level.During 30 years of investing I have realized the best way to profit form higher inflation is to purchase hard tangible assets.

Commodities Prices the Largest Influence in Next 14 mths:
Most investors are aware that commodities have been increasing dramatically over the last 10 months but few are aware that the Commodities Research Bureau Index of most major commodities including metals and crops is up an astonishing 42.4% already this year.

The reason I watch this index closely throughout my 30 years of investing in markets is that I have concluded that it is a early warning of higher inflation in the future.
If commodity prices increase the manufactures are forced to raise prices of their products. Soon thereafter wholesalers raise their prices which is reflected in the producer Price Index P.P.I. and finally the consumer realizes there's high inflation when it is too late when and it shows up in the Consumer Price Index.  The CPI which is always manipulated by governments around the world to reflect a better than reality scenario. 
Governments watch these indexes closely and if they find they are increasing dramatically, beyond the means of their citizens, they attempt to fight it by raising interest rates. Australia has already done this by raising their prime rate to 4 1/2%.
You must understand that many markets are influenced by a higher interest rates. Real estate in highly leveraged real estate markets will see less demand as more people cannot afford to purchase with higher interest rates. Consumers will curtail spending if they are required to pay more for credit card interest thus influencing the stock markets. Nobody wants to purchase a bond which is only paying for 5% if they know they can get 8 to 10% in the future so bond prices drop.
Inflation can Your Friend or Your Enemy:

Inflation can your friend or your enemy. Inflation will be your enemy if you keep money in a bank at 1% to 5%. Bond buyers will be hurt by higher interest rates. Real Estate in markets where there has been low interest rates and high % mortgages such as Singapore, Sydney, and most Chinese Cities will see less demand therefore a leveling off or even most likely a decrease in prices. Higher inflation usually kills the stock and mutual fund markets maybe as early as the end of next year.
 Higher Inflation Can Leave you High and Dry:

Inflation is like the tide it raises all boats. If you want smooth sailing you must invest in Tangible Assets. Inflation will be your friend if you keep your money in Tangible Assets that you can touch and feel. My favorite tangibles are Gold, Silver, Copper, Rare Metals, Cereal Crops and Non- Leveraged Low priced Real Estate with low supply and high demand such as what is available in Bali - One of the best real estate markets in the world.

 If you wish to find out more about my investment predictions for the balance of 2010 and for all 2011 I highly recommend you attend our seminar in Jakarta tomorrow Saturday October 30th.10 30 to 11:30 AM at the Le Meriden hotel or contact me at my office in Bali at 62-361-284069 and arrange for a private free consultation with no obligation.
 Smooth Sailing to you all.

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