Monday, January 10, 2011

UK Inflation Rising . . . Even As UK Housing Falls

Is the UK the canary-in-the-coalmine, with regards inflation and possible hyperinflation in the United States?

In the current inflationista vs. deflationista argument going on in the financial blogosphere, deflationistas see falling asset prices—like housing—as proof positive that rises in commodity prices don’t matter: Falling asset prices means deflation, to the deflationista camp. And they point to the American CPI numbers as proof: Rock steady in the ≤1% range.

So the deflationista camp claims that inflation—much less hyperinflation—will never happen to the U.S. dollar; said deflationista camp being Stoneleigh, Mish Shedlock, and others of that persuasion. They claim high inflation can’t happen in this environment where credit has collapsed, and the economy is slumping à la Japan 1993.

But can it? And can it be happening in the UK? Could the UK be a precursor for what’s to come in America?

Even though the Brits didn’t have even a single round of the Quantitative Shenanigans that the U.S. Federal Reserve inflicted on the American economy—and therefore ought to be suffering even starker deflation, according to conventional theory—the reality in the UK is giving lie to this deflationista construct: UK inflation is rising at a 3.3% clip as of November, a trend expected to continue or even increase in December—

—and now housing prices in the UK are in. And they are not pretty: UK housing prices fell 1.3% month over month in December, according to Lloyd’s Banking.

Notice that the FTSE 100 has tracked almost identically to the American equities markets, and the UK has had similar issues insofar as sovereign and corporate debt is concerned. But unlike the U.S., there was no Quantitative Easing—and no budget-busting stimulus.

But assets are falling in the UK, even as inflation is rising—slow and steady and implacable.

I’m going to be paying a lot more attention to the UK over the coming months—I suggest you do too.


  1. The UK has had QE, albeit not as much as America:

  2. QE in the UK to date has actually been LARGER than in America:
    - The total of Bank of England's QE is 200 billion £ (see ), which is approximately 13% of Britain's 1.5 trillion £ GDP
    - The total of US Fed's QE to Fall 2010 has been 1.5 trillon $, that is approximately 10% of America's 14.5 trillion $ GDP

    The Bank of England however refused to start a new round of QE end of 2010, while the US Fed took the opposite decision. As a consequence, America is fast reducing the distance with Britain as far as QE is concerned... they should be taking the lead around spring or summer this year...

  3. I think the inflation in the U.S. really starts to rear its ugly head once the Fed announces QE 3. Oh, and yes, they will announce QE 3. If it ever becomes apparent that the Fed is going to start tightening monetary policy, there would be a crash in the market that would make 2008 look like the roaring 20's.

  4. As to the argument that falling home prices = deflation, the answer to that is quite simple. As the corrections of reality take hold all things "real" will increase in value. Home prices simply are not "real" yet.
    Food, energy costs, gasoline, cotton ... these are real, they were not fraudulently securitized to the heights of fantasy as mortgaged backed securities and collateralized debt obligations were.

    Any questions?

  5. I've kept an eye on Britain for a while. It's probably going to turn quite nasty, since their phony CPI has been constant around 3% and is on the rise. Also, the components that have kept inflation numbers down for the last decade in britain is : computers, recreation, imported clothing and furniture. Food, energy, housing, electricity, health and education are all up massively.

    I did the whole rundown here :

    and recently here :


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