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It is that time of the month again when the U.K.’s Office of National Statistics publishes the C.P.I. (Consumer Price Index) and the R.P.I. (Retail Price Index). On March 20th we reported on how the higher than expected rise in these measures surprised mainstream economists and the media in U.K. Prices Starting to Gallop. Today the March R.P.I. was reported to have grown at a 4.8% annual rate of growth while the financial markets were expecting a rate of growth of 4.6%. More interestingly the C.P.I., which is the rate that the Bank of England is supposed to keep at 2% annual rate of growth, was reported to have grown at a 3.1% rate. The concensus forecast was for the C.P.I. to have grown at a 2.8% rate of annual growth. The move above 3% forced the Governor of the Bank of England to write a letter to Grondon Brown, Chancellor of the Exchequer or the equivalent of the U.S. Secretary of the Treasury, explaining why the C.P.I. is rising more than 1% above Mr Brown’s target of 2%. In the letter Mervyn King, the Governor, writes as if C.P.I. and inflation are the same thing and goes on to point out that the rise in C.P.I. and inflation were caused by increase in prices of furniture, petrol or gasoline and base effects in the measurement in the price of milk. By equating C.P.I. to inflation Mr King can pass the blame for rising prices on to the rising prices themselves while any economist worth his or her salt knows inflation is a monetary phenomenom and that a rising consumer price index or retail price index is the consequence of the rapid growth of money and credit. Check out the M4 chart (courtesy of Bloomberg) below to see how rapidly the U.K. money supply is growing. M4 is the Bank of England’s broadest measure of the growth of money and credit. The Bank of England is supposed to be an inflation fighter and set monetary and regulatory policy in order to keep inflation low. As we can see this reputation is not warranted. The only reason why the Bank of England still maintains its credibility is because they have been able to fool most people into believing that inflation and C.P.I. or R.P.I. are one and the same. Blaming a rise in prices of furniture for inflation is like blaming a sneeze for a cold! Mr King and his colleagues from Threadneedle Street do not fool us at ForSoundMoney! U.K. M4 Money Supply Growth
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