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Sour Mash

Inflation Figures

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Was just thinking ... it's widely anticipated that as the crazy oil bubble prices of last Summer work their way out of the figures, we'll see upward pressure on inflation again.

However, that's not the only factor that will be turning:

House prices: Stabilised, if only for the short term, meaning their downward effect on RPI is taken away.

VAT cut: Reverses at end of year. Pressure on RPI/CPI to rise.

Interest Rate cuts: Start to work their way out (maybe even reverse) at end of year. Should put pressure on RPI.

Remember, even with all the above factors putting downward pressure on the inflation indicators, we never got negative yoy RPIX or CPI (indeed, the CPI only last month dropped below the official 2% target). It was only the RPI that went negative ... and it was the one index really affected by house prices. As these factors drop out or even reverse, we are going to see some pretty sharp pressure on CPI and RPI.

In such an environment there's not a lot of excuses for QE ... I wonder if they will extend the programme while they still have the chance? I can't see them stopping it, it's too much of a crutch for government spending and the bond market.

Edited by Sour Mash

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