ICAP's Adam Carr is a classic:
"Inflation is shaping up to be 2011’s reality. Not that price pressures haven’t been evident for some time, or in the case of Britain well over a year! It’s just that people have chosen to ignore them, or pretend they don’t exist, which has never proven to be a successful strategy. Not sure how long this will continue though. Latest figures out last night show that UK Inflation rose a full 1% in December (highest m/m rise in almost two decades) or 3.7% annually which is a sizeable jump from the 3.3% annual pace in November (the BoE targets 2%). The retail price index, often used as the official benchmark, is even higher at 4.8%y/y from 4.7%. All the while, a cabal of money printing doves at the BoE and elsewhere have merrily been telling everyone not to worry- it’s all temporary. Hmm.
Unfortunately that hasn’t proven to be the case. Ordinarily you would expect some form of policy response from the BoE, although I’m sceptical this will occur despite the fact their credibility is threatened. The Fed and the BoE are, in essence, monetising debt and rate hikes don’t fit into that plan. They simply can’t afford it. It all strengthens my view, and as I discussed 2 years ago, that central banks will to be too slow to respond to inflation, heightening the probability that when they do move it will be destabilising. We’ve seen nothing from the BoE to suggest they are in tune with reality, nor has there been any humility from the usual wags who are still, by and large, trying to play things down.
It should be no surprise then that break-even inflation rates have and continue to rise. The 10yr UK breakeven rate is 3.2% - the 15yr rate is 3.4%! That doesn’t indicate there is a lot of faith in the BoE at the moment. And don’t go thinking it is a localised problem. We all know the inflation issues suffered by the emerging world, it’s above target in the euro zone and in the US, upstream price pressures are accelerating. The 5y/5y forward break even rate here is 2.9%, again well above the Fed’s unofficial target of 2ish%."
