If there was any doubt regarding how inept, gullible and arrogant the Bank of England (B of E) is, it came with its decision to raise interest rates by 0.5% to 1.75%. It’s the largest rise in 27 years, which sounds dramatic but against CPI (Consumer Price Index) inflation of 9.4%, it’s akin to calling the Fire Brigade a year after the house burned down. Too little too late, doesn’t really do it justice. Incidentally, RPI (Retail Price Index) inflation is running at 11.8% but I’m sure there’s a logical reason why the government and the B of E oddly never seem to quote it anymore.
Governor Andrew Bailey, showing all the predictive ability of a quack gypsy at the end of the pier (but without the same level of accuracy) told us “there is a real risk, of soaring prices becoming embedded.” Really? Whatever next? He’ll be telling us that Russia might invade Ukraine. Mr Bailey, rising prices are already embedded; that’s why you’re forecasting CPI inflation of 13%. You only had one job and that was to hit an inflation target of approximately 2%. With apologies to Lady Bracknell and Oscar Wilde, to miss an inflation target by a factor of three is somewhat worse than unfortunate but to miss it by a factor of six is beyond careless.
Thankfully, even amidst such a poor economic backdrop, there are bright spots. We’ve mentioned previously how, in our view, the best hope investors have of repelling inflation is the ordinary shares of proven, high calibre businesses. And here, recent results offer tangible evidence that their inherent pricing power is doing just that.