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How could so many experts get it so badly wrong?
Jonathan Prynn24 Mar 2009
Wasn't this supposed to be the start of the era of deflation?
Yes, it was. The majority of City economists predicted that the broad measure of inflation, the Retail Prices Index, would drop into negative territory for the first time in 49 years. It did not. The narrow "official" yardstick, the Consumer Prices Index, was supposed to fall sharply from three per cent. It did not. It rose.
How could so many highly paid City experts and the Bank of England get it so wrong?
Very good question. It seems baffling, given that most of the raw data that goes into the inflation figure is "out there". The "teenage scribblers" of the Square Mile have clearly underestimated the impact that the collapse in the value of the pound is having on the cost of imported goods. But, when judged by the "ordinary person test" it does not seem so bizarre - food retailers have been talking for months about the sharply rising cost of their supplies, particularly meat and vegetables.
So is this a blip or a genuine return to raging inflation?
Those economists who misread it this month are adamant that it is a one-off and that deflation has merely been postponed, not cancelled. They say that the bombed-out state of the economy and soaring unemployment means prices will simply have to fall. But this will raise serious question marks over the Government's whole rescue strategy. If there is more inflation than thought, is it right to flood the banking system with money through quantitative easing?
So are shoppers still spending?
The great mystery of this recession is how well consumer spending has been holding up. It may be that after years of a consumer credit boom we are just so fixated on spending that many of those 94 per cent still in work cannot kick the habit. Although the high street has been hit hard, few well-known names that were not already in trouble have actually gone under. The supermarkets, in particular, have seen big increases in like-for-like sales and that has enabled them to pass higher costs through to consumers, despite their message that they are doing their bit for the hard-pressed shopper.
Is there a "worst-case scenario"?
Unfortunately yes. If inflation is proving harder to control than anyone thought, it raises the prospect of interest rates having to go up again much sooner than expected. Rates on government gilts rose sharply today, reflecting fears that interest rates will go up sooner and more sharply that thought. And with unemployment rising remorselessly towards three million, that is the last thing the economy needs. The Bank of England will be treading a very fine tightrope over the next 12 months.
Reader views (10)
It's the 'elastic band' effect. Once a degree of measurement is put in place there has to be a time lag before the result can be measured. So much money has been poured into the economy but not enough time has elapsed for any real effect to be seen. Over compensation means the economy will be chasing it's tail for quite a while until things settle down. Like a pilot unaccustomed to instrument flying trying to maintain altitude by his altimeter. One minute he's diving and the next climbing. Each dive and climb worse than the one before as he compensates for lag. Eventually he crashes!
- Cyrjames, berwick-Upon-Tweed, UK., 24/03/2009 18:35
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Elected or Unelected, the fiscal situation we are all in will have to run it's disastrous course,regardless of what party is in power.
I don't think it has yet sunk in to the general populace that we have been paying ourselves too much, borrowing too much & spending too much!
The so called "Experts" have in fact turned out to be no more accurate than those "Experts" that purport to fortell our future in the Astrology columns in the various newspapers!
Unfortunately, the real clever fiscal brains remain outside the corridors of Parliament, as they do not need the cloak of Parliamentry Privilege/Waffle to make their fortunes, we only get the "Failed" experts in Government whom in reality are only front men for the permanent ministers whom themeselves would not last 5 minutes in the outside world, that's why they plumped for the safe environment of the "Establishment"!
It is said, and I quote, "In Central or Local Government, you can get away with incompetence for years, whilst in the private sector you can get away with charm for about 15 minutes, but after that, brother, you had better know something"!
Obviously, the Banking sector Executives did "Know Something", that's why they are "Laughing all the way to the Bank", and the numpties in Government are left holding an empty bag!
- Geronimo, LONDON MIDDLESEX, 24/03/2009 18:30
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They all got it so wrong because they do not seem to do their own shopping. If you visit shops and markets every then you can see that you get fewer bananas or other vegetables for you £. Every item imported from Euro currency countries has gone up drastically and every item bought in $ has gone up too due to the fall of the value of the £ against the $. It is not rocket sience.
- Paul, London, 24/03/2009 18:27
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Simply because the so-called "experts" are not quite as "expert" as we once thought.
As to why shoppers are still spending: because we have to. We still need food; we still need to heat and power our homes; we still need to fuel our cars. Unfortunately we do it at a higher cost and with an ever-shrinking pay packet, thanks to increased taxes to pay for bank bailouts, civil service pensions and MPs' expenses.
- Nobby Clark, Perth, Scotland, 24/03/2009 17:09
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They got it wrong because they can't think globally, devaluation will cause inflation for the UK that imports so much and exports so little.
- Brian Edmonds, Farnham UK, 24/03/2009 16:50
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The way out of recession is to spend less and work harder. When the going gets tough, the tough get going!
- Dudley Wood, Stradbroke England, 24/03/2009 16:42
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there are no 'experts' there are just people with some measure of experience.
this is further evidence, if such was needed, that these overpaid 'experts' know no more than the new kid on the block who has just taken maths at o'level standard.
the first rule of 'professionals' is to keep themselves in work, to achieve this they use complicated jargon instead of plain speak and bewitch the client by making whatever process the most complicated and expensive available. common sense is always the way ahead and the advice and 'expertise' of the 'professional expert' always a dubious concept.
time for a change, enough of these inept buffoons, their day is gone, they are prime examples of yesterdays blaggers.
- M.O'Brien, london.uk, 24/03/2009 16:04
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Labour Govts. only know one thing ; how to spend your money. So that's what they do!
- R Jones, Bristol UK, 24/03/2009 16:03
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Could this indicate a larger than expected black economy has developed?
After years of steadily rising taxes, fees, etc endured by legitimate businesses and rule-following individuals, I wouldn't be surprised if more and more people dropped below the tax horizen and went under the table.
- Tim, London, UK, 24/03/2009 15:24
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Complete morons,interest rates should never have been cut below 3% max.This government should all be jailed they make most crooks look like angels,having robbed everyone of their savings.In fact jail is too good for them.
- Mark Voice Of Reason, london england, 24/03/2009 15:06
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