In a replication of what is occuring in China, statistics released early this morning show the inflation rate in Great Britain surging at a rate that is twice that which the BOE had targeted.
Gold immediately responded for as with China, REAL rates of return for savers is running at negative clip.
The exact same problem exists here in the US only the US is cooking its inflation statistics without the least bit of shame.
Here is the headline from Dow Jones:
DJ 2nd UPDATE: UK Inflation Rises To Double BOE Target In January
- Inflation running at double the BOE target of 2.0%
- Sterling slips as markets had expected a higher rate
- Data triggers explanatory letter from BOE's King
- Core inflation falls in January from December
- All eyes on BOE Inflation Report Wednesday
(Adds comment, background.)
By Alex Brittain and Ainsley Thomson
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--U.K. consumer prices rose at double the Bank of England's
target rate in January, heightening the pressure on the bank to raise interest
rates.
The Office for National Statistics said Tuesday that annual inflation was
4.0% in January, up from 3.7% in December and the fastest rate since November
2008.
The figures will "intensify pressure for an interest rate rise," said ING
Groep NV economist James Knightley.
All focus will now be on the BOE's quarterly inflation report Wednesday,
which should give investors a clearer picture of where rates are heading.
"The general tone of the report and the accompanying press briefing will give
us a much better idea as to whether the market fully pricing in a rate hike by
May is realistic," Knightley said.
Sterling fell in response to the data, which were slightly lower than
expected. Economists in a Dow Jones Newswires poll last week had forecast a
4.2% rate.
The pound dropped to $1.6055 from around $1.6080 before the data were
released, and the euro rose to the day's high of GBP0.8430.
The ONS said the main factors pushing prices higher were crude oil costs and
the rise in the sales tax in January.
BOE Governor Mervyn King will send an open letter to George Osborne, the
Chancellor of the Exchequer, at 1030 GMT to explain how the central bank will
react to inflation being so far above the bank's 2.0% medium-term target.
Members of the bank's Monetary Policy Committee may take some comfort from a
monthly fall in core inflation. This measure, which strips out volatile items
like energy and food, fell 0.4% on the month. It rose 3.0% on the year, edging
up from December's 2.9% rate.
MPC members in recent months have shown concern that above-target inflation
could become embedded if wages begin to rise in step. But the fragile state of
the economy has prevented the majority of MPC members from voting to raise
borrowing costs.
The consumer price index rose 0.1% in January in monthly terms, the first
time prices have risen from December to January since records began in January
1997.
Economists had expected prices to rise 0.3% on the month.
The nine members of the MPC voted in February to keep rates on hold for the
23rd straight month, at an all-time-low of 0.5%, despite inflation having been
more than a percentage point above target for more than a year.
The MPC was given early access to the headline CPI figures before its vote
last week.
Prime Minister David Cameron's government in January increased the value
added tax to 20% from 17.5%. This is expected to push inflation higher in the
coming year, although the exact impact isn't yet clear.
In January 2010, an equivalent rise in VAT added 0.4 percentage point to
annual inflation, the ONS said.
Tuesday's data also showed retail prices--often used as a basis for pay
negotiations--rose 5.1% on the year and 0.3% on the month in January. That was
slightly higher than expected.
-By Alex Brittain and Ainsley Thomson, Dow Jones Newswires; +44 20 7842 9452;
alex.brittain@dowjones.com
(END) Dow Jones Newswires
02-15-11 0532ET
Copyright (c) 2011 Dow Jones & Company, Inc.
