I cannot pin it down, but the impression I get is that
we may well be past the point of no return to very high inflation. Just how high we shall see!
Reasons -
1. It's baked in. The PPI (production price index) was running at 13% in Summer and it seems to be far higher right now. Add wage and other increases, such as farming production costs of 22% and we see
a tsunami of inflation that has already happened further up the line, coming down upon us!
2. Acceptance. The supermarkets have been trying to limit the amount being passed onto the customer and they held at 5% increase in Summer, but a little bird has told me that they have experimented with full increases on some goods and
customers seem to largely be accepting those increases.
3. Expecting more inflation. We are (as a company) seeing predictive increases in energy and other costs for next year's contracts. i.e. the
suppliers are expecting further increases over and above those that have already come through and pricing accordingly. When people begin to calculate future increases in prices that have not happened yet, that is when inflation gains its own momentum and becomes dangerous.
3. Commodity inflation. There has been a lamentable
lack of investment into certain key commodities such as oil, gas, gold, silver and the so-called 'battery metals' such as nickel, cobalt and lithium. This lack of investment has been partially for political reasons and partly because the prices were far, far too low. Also, the prices we see on the ticker are often not the prices we pay - silver is at about $25 an ounce but try buying a real-life physical ton of the stuff at that price!
4. Even more tax increases are coming! Even now, because government bonds are often index-linked, the UK is spending more on interest on those bonds than on defense! Now add the inflation in the pipeline and
either they will have to go back to the Magic Money Tree or dip into our pockets again. The government used to give the daft reply
"Rates are so low that we can afford it!" to criticism of their high borrowings. Well, we can't!
5. They can't raise interest rates! Real interest rates are below real inflation - so
effectively we have negative interest rates. Imagine if central bank rates were higher than inflation, let's say about 2% higher. So now the BoE rate would be at least 6% and rising - imagine what would happen to the cost of all those company bonds and mortgages! Debts would be defaulting left, right and centre, the government would run out of money and the economy would crash! The best the BoE can do is to make little gestures of nominal rises that are waaaay below inflation. As the tsunami bears down on us, all the BoE and this government can do is to look on helpless!
