Bank of England Governor ‘concerned’ about inflation persistence
The inflationary surge of the last 18 months has spread misery and chaos throughout the world and in particular the UK.
So I’ve been taking the chance to spread some cheer in these columns by passing on expert forecasts claiming that inflation is finally on the run.
Things were going to get better, I said.
Express.co.uk readers were more sceptical. In comments below my articles, the general mood was “I’ll believe it when I see it”.
Our readers have learned from bitter experience not to put too much faith in the words of politicians, or supposedly independent experts.
So when the Office for Budget Responsibility claimed inflation would drop to 2.9 percent by the end of the year, readers greeted this with a collective shrug.
All they needed was a quick trip to the supermarket to learn that living costs were rising faster than ever.
In the year to March, food prices rose by a scarecely believable 19.2 percent. Inflation as a whole was 10.4 percent, well above the 9.9 percent expected.
Core inflation, which excludes volatile sectors such as food and energy, held firm at 6.2 percent.
Yet the Bank of England is sticking to the optimistic script that “inflation might now have turned a corner” and will “fall quickly this year”.
As readers would say: “I’ll believe it when I see it”.
Now a worrying new trend has emerged that suggests inflation isn’t going anywhere.
Policymakers and academic bodies aren’t the only ones who are paid a small fortune to take a view on inflation.
Global investment fund managers invest trillions on behalf of their clients, and also need to know what’s going on.
Now here’s the worrying thing. They don’t think inflation is beaten at all.
US asset manager BlackRock is the biggest in the world, managing around $8trillion (£6.5trillion). To put that into perspective, that’s two-and-a-half times the value of the entire UK economy.
Its experts say inflation is sticky and central bankers including the BoE have more work to do to defeat it.
BlackRock is now piling its money into inflation-linked bonds, as a hedge against rising consumer prices. It’s doing so with the “highest conviction”.
Morgan Stanley analysts are equally concerned. They are working under the assumption that “persistently rising inflation” could become the “norm” for years to come.
Plenty more asset managers are taking the same view.
What worries me is that the Bank of England is desperate to herald the death of inflation, given that it is largely to blame for letting it run out of control in the first place.
All asset managers are trying to do is make money, which makes them more clear-sighted forecasters.
Their forecasting record on inflation is far better than the BoE’s. It could hardly be worse.
I hope the Bank of England is right, and we do see substantial falls in consumer price growth, possibly from as early as May.
That still doesn’t mean prices will start falling, though. It just means they will continue to grow at a slower rate.
Some kind of tailing off is inevitable, as last year’s inflationary spike falls out of the annual figures.
But a substantial drop? I’m not convinced it’s going to happen. Certainly not as convinced as the BoE and OBR.
If the money managers are right and our policymakers wrong, this will be a financial disaster.
The cost-of-living crisis will rage on, forcing the bank to push interest rates towards five percent, wiping out many mortgage borrowers.
And the cost of servicing our national debt will stay high, too.
Let’s hope the BoE’s rosy scenario is correct, and inflation does start plummeting soon.
Like Express readers, I’ll believe it when I see it.
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