Failure Being Rewarded?

Well who would have thought it……the Bank of England has got it wrong again.

Whether you like it or not, inflation is a big deal in this country. You only have to look at the price of food, fuel and energy to understand the pressure households are under given that incomes are falling.

But fear not, the Bank of England have it all under control……you would think. Well actually, NO.

The Background Bit…… 

Essentially, the two main functions of the Bank of England are to keep prices stable and maintain confidence in our currency. We’ll leave currency for the moment (that’s a whole different can of worms) but price stability is the key for most of us.

Patronising time……price stability is very much about keeping the cost of goods and services (or as the ‘boffins’ call it……inflation) broadly in line with increases / decreases in household income.

Controlling inflation was traditionally achieved by playing with interest rates. If inflation started to rise, the Bank of England would raise interest rates and this would put pressure on household expenditure through more expensive loans / mortgages / credit cards (stopping households from spending as much and lowering inflation as a result). And vice versa.

The Problem……

The Bank of England have a target of keeping inflation at 2% as this will keep prices stable. They have many powers to achieve this but that is the target……and they have failed to deliver this for years. Not a few months……years. You would have to go back to 2007 to find a period of consistency around 2%.

Fear Not……

When inflation was running at 5.2% back in September 2011, we were informed not to panic as inflation would drop in 2012 to below the 2% target and all would be restored to good.

But Guess What……

After just 5 months of steady falls to 3.4%, inflation rose this month to 3.5%. Still 150% above target and yet nobody is questioning the very well paid ‘experts’ on Threadneedle Street why they have again failed to deliver what the economy needs.

The Importance……

Around 70% of all money made in this country is linked to consumer spending. We need to spend as a nation to create wealth, jobs and prosperity. This is why keeping inflation in line with increases / decreases in incomes is massively important. At the moment, we (broadly) have less income paying for more expensive goods / services. This clearly does not promote economic growth and could lead to recession again. 

The Real Inflation Controller……

It is no longer the Bank of England (as they have shown)……it is the banks. They control the supply of money in this country. When it is cheap and readily available, we grow as an economy. You need only look at the doubling of house prices 5 years ago….easy and cheap money created inflation. 

So let’s not kid ourselves any longer. The Bank of England is powerless at controlling inflation. I feel a moral obligation to save their further embarrassment and put them out to graze.  

Besides, in what other occupation could you fail for 5 years and retain your job?