Inflation is heating up in the UK!
U.K. inflation accelerated more than economists forecast in April to the fastest since 2008, forcing Bank of England Governor Mervyn King to explain publicly why officials haven’t raised interest rates yet.
Surging commodity and energy prices have kept inflation above the bank’s 2 percent target for more than a year, and the Ernst & Young ITEM Club said yesterday that may undermine consumer spending for a decade. The central bank signaled last week it may need to raise the key interest rate from a record low to control “uncomfortably high” inflation that may reach 5 percent even as economic growth slows.
“This outturn is consistent with the broad inflation profile predicted by the Bank of England that inflation will top 5 percent later this year,” said David Tinsley, an economist at National Australia Bank in London. “It’s certainly upside news.”
For regular readers of Smart Money Europe, this shouldn’t come as a surprise.
Two months ago, we already showed that the monetizing of UK debt many times in the past resulted into a hyperinflationary collapse.
We still have to see what effect the recent price correction of oil will have on the future CPI numbers in the UK, but history already shows that short term oil price corrections have little effect at the pump.
With soaring inflation in the UK, bond investors are bitting the dust, as 10Y government debt paper is only yielding 3.4%! How long will this bond market last?
So, the UK CPI is steadily on a rise, clearly showing the UK economy is currently muddling through a stagflationary environment, still at risk of an hyperinflationary nightmare.
Of course, there always a place to hide for UK investors…