|
The manipulation of the CPI statistic is more clearly evident in the chart above when compared with the inflationary trend of the RPI Index, which shows itself as a more reliable indicator of future interest rate trends. The chart shows, that the RPI trend is calling for further rises in UK interest rates despite the significant dip in the CPI from 3.1% to 2.5%, which is mainly due to the continuing fall in gas and electricity prices as compared with the rises a year ago.
Strong inflation in the UK economy is as a consequence of the continuing expansion of the UK money supply by the Bank of England as measured by M4. Whilst the money supply continues to expand at such high levels (13%), then we can expect inflation to continue to trend higher. The Bank understands that despite 10 years of publicity, the CPI inflation measure is not recognised by much of the UK economy when determining a reliable indicator of inflation with regards pricing and earnings. Therefore a further rise in UK interest rates to 5.75% is still the expectation as a consequence of the high RPI measure of inflation. The next rise remains most likely to occur at the August MPC Meeting, even if the CPI continues to trend lower towards 2% over the coming months which increasingly looks likely. Notes Bank
of England Governor Warns of another Interest Rate Rise - 11th June
07
The Market Oracle is a FREE Financial Markets Forecasting & Analysis online publication. We aim to cut through the noise cluttering traditional sources of market analysis and get to the key points of where the markets are at and where they are expected to move to next ! http://www.marketoracle.co.uk CONTACT
INFORMATION
The opinions of FSU contributors do not necessarily reflect those of Financial Sense. |
