For the second month in a row, UK CPI inflation has been worse than expected and currently stands in double digits. The Bank of England noted the path of inflation may be bumpier than expected in the short term but is likely to fall from thereon. We suspect it is correct but then, the Bank of England, like most major central banks, thought it was ‘transitory’ in the first place. Perhaps of more relevance is that even if inflation falls to, say, 5%, real interest rates remain negative and the 2% official target is still light years away.
We have a fundamental problem believing the prognostications of those whose judgement has already been proven beyond flawed. Or, to put it another way, if they didn’t know where they were going and how they got here, what are the chances they are going to plot a successful escape? The excesses resulting from 15 years of unconventional monetary policy have seriously reduced central bank policy options from here on. They allowed economies to become addicted to cheap credit and consumption, then printed money to maintain an unsustainable façade. This stagflationary mess will not be corrected by those responsible for it; we continue to put our faith in high-quality businesses acquired at prices we can live with for the long haul.
