From Shropshire to Ibiza, How the BoE got Inflation Wrong

Posted by Mark on 20th May 2010
For most of my adult life I had assumed that stagflation was the process by which everyone of your friends stag do's had to be more lavish and excessive than the last; 10 years ago paintballing in Shropshire would suffice, now it's a long weekend in Ibiza/Vegas/etc.....

Unfortunately for UK plc then, like often, I was wrong; stagflation is persistent inflation in an a recessionary environment.

But we're not in recession, I hear you say; fair enough, but 0.2% growth is pretty anaemic even by the standards of one of Queen Victorias children and with the Eurozone, our biggest trading partner heading down the pan, we're not free from the woods yet.

And inflation? Merv seems pretty relaxed in his latest letter to his new best friend Chancellor Clegborne.  Having said that this is the seventh time in two years that he has had to write such a letter, so much for inflation being a "temporary" phenomena.  But, who am I,  a jumped up retail agent, to judge?

Well I would hope if it was my job to judge I would make slightly a better fist of it.  Exactly a year ago the BoE forecast that "temporary" inflation would have passed and that it would have reduced to 0.70%.  So they only underestimated "temporary" inflation by a factor of 500%.

One thing is very clear, for a property industry that has been "juiced" by practically free money; if "temporary" inflation is unexpectedly this high in another twelve months, interest rates will be a lot higher.

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