Thursday, 16 February 2017

Our Old Friend Inflation Is Peeking And Peaking Round The Corner

UK inflation is now at 1.8%, just below the governments target that it should remain below 2%. Nothing to worry about then. Except that raw materials costs for UK manufacturers are up by about one fifth and they can't absorb it all forever. Oil prices are rising once again, but that will be exacerbated by the weaker pound as well; the cost of transportation of goods is well on the rise and that means the goods themselves will cost more when they arrive. Not to mention the rising prices for imported finished products due to the exchange rate.

Many businesses are facing rising business rates. Local authorities aren't always peopled by the brightest of souls. The huge and inexorably rising national debt means they are trying to squeeze money every which way and from everyone; one has some sympathy, the debt means no government money to speak of, but plenty of governmental obligations in terms of things they have to provide.

Nonetheless if their council tax payers go bust then they and everyone else is worse off. So bright ideas like increasing business rates for shop keepers at the same time as putting parking restrictions in place to drive them out of business in the hope a few more pennies will drop into local authority car parks is the kind of genius we've come to expect.

Anyhow, back to inflation, the minimum wage will rise in April but many businesses are actually trying to pay the living wage or higher, they will also have to support the workplace pension. Women who've lost six years worth or more of state pension and people like myself who invested in private pensions, only to see Gordon Brown destroy them will know all about trusting the government regarding pensions, but as regards inflation it's just another cost businesses have to face and WILL pass on.

The media tells us that the consumer has kept the economy buoyant post the ridiculous and foolhardy referendum vote. That's because the Bank of England has flooded the country with new paper money and kept interest rates artificially low so that people who never experienced mortgage rates in double figures can get into debt, way over their heads.

Now, with so many people in debt, the bank must be terrified of raising rates, but eventually they will have to, with all the upward pressure on prices, raw materials costs, transportation costs, wage and pension costs, business rates, expect to see that 2% inflation target lost within months and that's without the two years worth of volatility during the so called negotiations.

If you're a Brexit voter living on credit, then well done you!

You can express sympathy with this view here if you like!

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