Get ready for inflation
May 19 2010
More inflation is on the cards
High inflation could be the answer to the UK’s debt crisis.
James Hughes, chief economist of Black Swan Capital wealth managers, says: ‘High, potentially double-digit inflation is essential to the recovery of the UK's economy. The inflation that is heading our way is the most effective medicine for indebtedness, albeit one that is hard to swallow.’
The comments come as the latest consumer price index (CPI) revealed an inflation jump of 3.7 per cent in April, up from 3.4 per cent in March. The Office for National Statistics also reported that the retail price index (RPI), a wider measure of inflation which includes mortgage payments, soared to an 18-year high, reaching 5.3 per cent last month.
Mervyn King, governor of the Bank of England, blamed higher fuel prices, tax rises on alcohol and VAT changes for the increases.
However, Hughes says inflation will continue to rise: ‘The perfect recipe for high inflation is to spend more than you earn for a few years, ramp up public sector debt and increase money supply faster than the economy is growing — and that's exactly what the UK has done. ‘But there is often a lag, which is what’s currently lulling some people into thinking there is no real and substantial inflation risk, that inflation will somehow fall back rather than keep rising. This isn't going to happen and the latest figures confirm this.’
David Kern, chief economist at the British Chambers of Commerce, says the latest figures should act as a warning: ‘This risky backdrop makes it even more important for the new government to urgently produce a detailed plan for reducing our unsustainable Budget deficit.’
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