Cover of MoneyWeek Magazine issue no 519

What next?

7 January 2011 / Issue 519

Our experts give their tips for 2011

PLUS:

  • Will BP bounce back this year?
  • Five big surprises to watch out for
  • The rise of the Oprah empire

Excerpt

2011: year of inflation

It’s starting to look like this will be the year everyone suddenly notices inflation. China has raised interest rates twice in the last three months. Korea is calling for a “war” on inflation. In Britain the consumer price index (CPI) is running at well over 3% and purchasing manager index (PMI) numbers show that the prices paid by our factories for materials are rising at the fastest rate since the survey started in 1992.

The Bank of England would like to think this is temporary. But it is hard to see how this can be the case, regardless of the state of our banking system. China, which once hid the inflationary bias around the world by exporting deflation to all of us, is now doing the opposite: rising wages there mean that the prices of the goods we buy from it are rising too.

Petrol prices are up. Train tickets are up. Even the price of a loaf of bread is up. But worst of all, from the Bank’s point of view, inflation expectations in Britain are rising. As Patrick Hosking points out in The Times, the Citi/YouGov study of the British population’s feelings on prices makes for uncomfortable reading. Not only do people not expect the CPI to fall, but they expect it to keep rising: over the next five to ten years they expect annual inflation of around 3.8%.

That’s bad news.

• Read the full editor’s letter here:
2011: year of inflation

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