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In the midst of a worldwide recession Britain's CPI (consumer price index) rose 3.2% in February. This is not supposed to happen. In normal circumstances consumer prices usually drop or remain steady during a recession. The Office of National Statistics in Britain said that the increase in the CPI was due to an increase in food prices.
Now all of the pundits are scrambling for an explanation. Mervyn King, governor of the Bank of England, blames it on the depreciation in the British pound. Since the summer of 2007, the pound has fallen 28%. Mr. King tried to soothe investors by saying that he expects inflation to fall to the government's target of 2% later this year.
Increasing inflation is usually bad. But in a bizarre twist, the pound rose to a six-week high against the dollar and government bond prices tumbled. The yield on the 10-year gilt (note) rose above 3.25% for the first time since the Bank of England began "quantitative easing" (creating money to buy assets to counter deflationary forces).
Why is all of this important? First of all, it has caused the Bank of England to slow its policy of "quantitative easing."
Secondly, if this is happening in Britain, should not the US pay attention to this flaw in its own policy of "quantitative easing?" Will quantitative easing also lead to inflation in the US? Mr. Bernake, please take note.
Will inflation return in the US?
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Reader Comments (Page 1 of 1)
3-25-2009 @ 4:50PM
Iridium said...
Yes and any inflation will prolong the recession. Stagflation was inevitable.
The only way to reduce stagflation is to let massive corporations die and break up the monopolies that have taken over the global economy.
Massive corporations only exist to keep real wages down and real innovation contained. There is a reason why progress and innovation has slowed to a crawl. I'm sorry but Facebook and Crocs don't count as any type of meaningful innovation.
The only way to move forward is to return to a real free market system. The only way to do that is forced privatization. Once the public company disappears we will be on our way to a bright future. You stay in business by actually selling a product or service, not manipulating a stock price through bogus accounting.