More data has been released showing that inflation in the UK as measured by the CPI (Consumer Price Index) more than doubled in April, to an annual 1.5%, up from 0.7% in March.
This data was recently published by the UK’s Office for National Statistics.
UK inflation more than doubles.
This is adding to ever increasing fears by investors that we are seeing the beginnings of runaway inflation not only in the UK but in Europe, the U.S. and globally.
Although the Bank of England are aiming for a 2% average inflation rate, many investors and some financial experts are now expecting inflation to overshoot that level, mainly due to the sheer scale of recent government and central bank monetary policies.
Consumer Price Index
Over in the U.S. consumer prices (CPI) jumped a massive 4.2% for April from a year earlier, the sharpest rise since September 2008.
The Consumer Price Index measures a basket of goods as well as energy and housing costs.
Commodity and energy prices have played a role in the recent spike in inflation with core commodities such as Copper and Lumber way up in 2021. This has triggered a flurry of online memes about the shocking spike in these core commodity prices.
In Europe, recent data showed that EU inflation is running at 1.6%, proving that inflation is growing and could eventually simply spiral out of control.
Many fear that central banks across the globe have woefully underestimated inflationary pressures on the economy as business begin to re-open and the global economy starts to recover from the almost year long imposed restrictions.
At the moment however, many Central Banks including the the Bank of England seem to be playing down these inflation numbers, stating that these pressures are natural for a recovering economy.
In a recent interview on CNBC the Bank of England Governor Andrew Bailey says that UK inflation, “will be a bit bumpy this year”.
He also confirms that, “there will be an upturn in inflation”.
“At the moment, we are not seeing evidence that alarms us in terms of will this become embedded in higher inflation? But we will watch it very carefully,”
Read more about Andrew Baileys comments on inflation here.
Raising interest rates.
Could the Bank of England simply raise interest rates to cool off inflationary pressures?
Well they could, but raising interest rates would essentially bankrupt an already overly-indebted government, as well as completely destroy the private sector due to it also having excessive debt levels.
Raising rates could cause major insolvency issues.
There is vast evidence of a direct relationship between the growth of the money supply and long-term price inflation. Central banks and governments across the globe continue to flood their economies with financial stimulus in the forms of stimulus cheques, furlough payments, grants, bailouts, quantitative easing and more.
Although many citizens have benefitted from these stimulus packages in the short term, the long term consequences are potentially more harmful financially to the average person.
Gold is benefiting from the fact that we are currently living in arguably increasingly troubled times. The more uncertainty, the more investors will turn to safe assets such as gold.
As UK inflation doubles, gold is often seen as a great way to preserve wealth during times of runaway inflation.