Core strength
Forget the headline inflation figures, look at “core” inflation, which excludes rapidly fluctuating external factors such as energy. In the UK it is stubbornly stuck at around 6%.
This is what will worry the Bank of England. This core inflation will not come down as international oil prices fall or last year’s huge hike in fuel prices fall out of the calculation.
It is also three times the level the Bank is supposed to target, it is in a sense hardwired into the economy, it will be difficult to reduce. Because to do that you have to slow the economy, make people afraid to ask for pay rises and make companies unable to pass on price increases.
To do that interest rates need to stay higher for longer. Increasing the cost of everyone’s debt including the government’s.
This is going to be a long slog, the government will boast about bringing down inflation, even trying to make it seem that prices are falling. But the Bank of England has a serious remit and it shows no signs of weakening its commitment to that remit.
Economics, trade and Brexit, not necessarily in that order but the dog always comes first.
By Jonty Bloom Media