Annualised CPI inflation in the UK runs at 6% for the month of August, MINUS 40% needed to get back to target

All the headlines today are about how annual CPI inflation is running at 2.5%, falling from 2.6% the previous month. This is still over the legally required CPI rate of 2% “AT ALL TIMES”, a level the UK last saw all the way back in November 2009 – we’re heading towards 3 straight years of ‘miss’ by the Bank of England.

But what most have missed is the fact that the month-on-month inflation rate (the change between one month and the next next) jumped to 0.5% – which is an annualised rate of 6%.

From the report:

• The Consumer Prices Index (CPI) annual inflation stands at 2.5 per cent in August 2012, down from 2.6 per cent in July

• The largest downward pressures behind the change in the CPI rate came from furniture, household equipment & maintenance, housing & household services (particularly domestic gas) and clothing & footwear. These were partially offset by an upward pressure from transport (particularly motor fuels)

So basically the stuff people don’t ‘need’ per-se (like shoes) got cheaper over the year but the stuff people do ‘need’ (like fuel) did.

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And here’s the bit talking about annualised 6% CPI inflation:

The CPI rose by 0.5 per cent between July and August this year compared with a rise of 0.6 per cent a year ago. The rise this year is within the normal range for a July to August movement. Between 1996 and 2010, the 1-month change between July and August has varied between 0.0 per cent and an increase of 0.6 per cent.

So what caused that 6% annualised increase?

The CPI rose by 0.5 per cent between July and August this year. The largest upward contributions to the 1-month change came from:

transport: prices, overall, rose by 1.3 per cent, contributing 0.21 percentage points to the total CPI 1- month change.

The largest upward pressures came from motor fuels and air transport. Petrol prices rose by 3.5 pence per litre on the month to stand at £1.35 per litre while diesel prices rose by 3.3 pence per litre to reach £1.40 per litre. As usual, air fares rose between July and August, by 10.2 per cent this year.

clothing & footwear: prices, overall, rose by 2.8 per cent, contributing 0.18 percentage points to the total CPI 1-month change. The upward pressure came from garments.

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So cheap shoes bought the headline year-over-year rate down but helped push up the month-over-month number.

So now to our favorite chart, the one that proves categorically that you’re being screwed by the Bank of England. The red line shows how much CPI inflation the government requires the Bank of England to produce. If the BoE were doing its job properly we’d see a blue line (the CPI inflation produced by the BoE) tightly hugging the blue line.  Anything above the red line means that the BoE have failed at doing their job:

 (click for sharper image) 

To put this in context the UK could have 0% monthly CPI inflation each-and-every month for the next two years and that would still only put the UK back to where it should’ve been all along.

Or to put it another way the UK could ‘suffer’ a fall in annulised inflation of over 40% in one month and the UK would still only be back to where it should’ve been all along.

#BoEfail

Related posts:

1. UK inflation rises to 0.6 month on month – that’s 7.2% annualised – gold price drops on the news
2. As the CPI falls for a third month the Bank of England has still produced 41% more price inflation than they should
3. The BoE needs 43% annualised deflation just to meet its 2% target rate
4. CPI inflation back to 4.5% – 21 months of BoE ‘fail’
5. UK CPI falls to 4.2%: inflation in the UK is still more than 100% over target, more money printing now guaranteed

Link to this article: : http://www.goldmadesimplenews.com/analysis/annualised-cpi-inflation-in-the-uk-runs-at-6-for-the-month-of-august-minus-40-needed-to-get-back-to-target-7962/

Posted by Thomas Paterson on Sep 18 2012. Filed under Analysis. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.