The Bank of England raised base rate by another quarter of a point to 4.5%, representing the 12th consecutive increase and a damning indictment of its failure to conduct competent monetary policy. The 0.25% uplift emulated the actions of both the U.S. Federal Reserve and European Central Bank although their benchmark rates are now 5% – 5.25% and 3.25%, respectively. They, too, are equally culpable of gross incompetence by having to raise borrowing costs to neutralise the inflation they helped create by printing so much money.
While the prices of volatile commodities such as food and fuel have fallen, thus reducing headline inflation, the problem now is that so called ‘core’ inflation (everything else) is proving to be somewhat ‘stickier’. In the U.S. core inflation is 5.5% which might suggest a degree of structural inflation has now entered the global economy. If it has, it will prove difficult to control and that’s before taking into account the natural volatility of food and energy prices.
Central bank intervention over the past decade has been disastrous. By artificially preventing recessions, they have created a plethora of imbalances and when combined with endless government deficits, it has brought us to the present stagflationary mess. As an investor, one must attempt to prosper in spite of such agencies rather than because of them.