In this video, I explain why that is the case. The inflation we are facing is not driven by excess domestic demand. It is being driven by war, supply shortages, and speculation in global commodity markets. Interest rate rises cannot produce more oil or resolve supply disruption, but they can suppress demand further in an already weakening economy.
That is the risk we now face. Raising rates in these conditions could accelerate the move toward recession, increasing business costs, reducing investment, and undermining confidence. There is a real danger that central banks could turn a fragile situation into a much deeper economic crisis.
From the ONS:
The Consumer Prices Index (CPI) rose by 3.3% in the 12 months to March 2026, up from 3.0% in the 12 months to February.
On a monthly basis, CPI rose by 0.7% in March 2026, compared with a rise of 0.3% in March 2025.
Motor fuels made the largest upward contribution to the monthly change in both CPIH and CPI annual rates; clothing made the largest, partially offsetting, downward contribution.
Core CPIH (CPIH excluding energy, food, alcohol and tobacco) rose by 3.3% in the 12 months to March 2026, down from 3.4% in the 12 months to February; the CPIH goods annual rate rose from 1.6% to 2.1%, while the CPIH services annual rate rose from 4.2% to 4.3%.
It is core CPI that is the policy relevant rate. It’s still more than 50% over target. Without the price of fuels, note.
Never let a war go to waste. It’s a handy excuse for all the things you want to do anyway. Pretty distasteful stuff really, gloating over wars. We need a politics of care or something.
Martin
Touche for getting in a mention of one of his latest hobby horses!
We have lots of politics of care. Already. And next week lots of us get to vote which colour politics of care we want in our councillors.
Personally I’d like to see a campaign leaflet from a party saying what our priorities aren’t and how indifferent they are to you.Just for the lols
Most of the inflation results from government policy. It is not over-exuberant demand and it wouldn’t be fixed by higher interest rates. Oh, and of course it isn’t the war and if it was govt could reduce oil taxes at a lesser cost than raising rates, government itself being on the hook for massive debt.
For a similar picture in the US see
https://wolfstreet.com/2026/04/30/inflation-in-the-entire-us-economy-is-rocking-and-rolling-and-its-not-just-energy/
If anyone would like something else to harrumph about note this extraordinary figure:
“per-pupil spending now exceeds $42,000″.
That’s the annual spending on New York City’s schools. That’s ‘schools’ in the British sense, not colleges or universities.
And the kids come out illiterate. The money is for the teachers union.
Meanwhile, back in the Carolinas, parochial schools teach kids for $12k per pupil. AND the kids come out educated, ready to get on with life.
The Brit who’s running for Governor of CA, Steve Hilton, has an interview in the Spectator:
“Raising rates in these conditions could accelerate the move toward recession, increasing business costs, reducing investment, and undermining confidence.”
and from the other post
“Secondly, regulation must change the investment landscape so that high-carbon activities are curtailed”
the old quote about double standards being the only standards comes to mind
You missed his post where he posits that the only solution to the risks posed by AI is that the state and him take control of all of it.
So let’s stand back and look at what is going on here. This inflation that we are facing is imported. There is a real risk of inflation. Nobody is denying that. It could rise by 2% or more very easily over the next year, but it is not homegrown. The inflation we face is caused by two things.
One is the absolute shortage of goods created by war.
The other is financial speculation in commodity markets. That requires a financial transaction tax, something I’ve already talked about.
I’m not sure there’s that much ‘commodity’ speculation and within many commodities markets liquidity is dependent on an element of speculation. He really does not have even the faintest idea what he is talking about.
Wartime inflation suppresses demand. That is what is happening right now. It doesn’t inflate demand; it reduces demand. Meanwhile, standard interest rate theory assumes excess demand is driving inflation. Wartime shortages do the exact opposite. We have suppressed demand at the moment, and not the inflated demand, which is what they think has created the pressure resulting in inflation.
Aren’t we seeing empty shelves and fuel shortages at the pumps – how is that evidence of ‘demand suppression’? If that’s the case why advocate rationing – or was that 48 hours ago?
Higher rates can only increase the probability of business failures and unemployment in this situation, and what we are facing now is the equivalent of banks defending the gold standard in the 1920s. That was wrong then; increasing interest rates now is equally wrong. The consequence of that dogmatism back in the 1920s was catastrophic. We had a deep depression, and we could see the same thing happening here, now. This is what the dissenters and those speaking on behalf of the Bank of England to threaten interest rate increases are suggesting we might get as a consequence of their actions, and they don’t appear to care.
This is the 30th depression you have predicted since 2009. AM guessing ‘stopped clock logic’ means you might get it right one day.
Higher interest rates will also probably raise inflation, and when I say probably, I mean almost certainly. Interest rate rises feed directly into rental costs and so into business costs in the UK. Businesses facing higher costs for rent, for interest, and for other raw material supplies will all seek to recover them through higher prices. Many goods and services are now also effectively leased with returns tied to finance costs, and as financial costs rise, so do the prices of those products. Altogether, what this means is that if interest rates rise, the Bank of England could be compounding the inflation it claims to be fighting. This is not an unintended consequence. It is a predictable and an entirely avoidable one.
Oddly he seems to be suffering from selective memory (or premature senility) – 6 years ago in response to a crisis we put interest rates to near zero and poured money into the economy which wasn’t based on any production in response to a bioweapon and a conspiracy to implement global tyranny. The results in terms of inflation are still being felt now!! Almost all the costs driven here are caused by government crowding out and overregulation. Scrap DEI, Net Zero, the Employments Rights Bill and a raft of other left wing legislation. Fire 4 to 5 million public sector workers and move the entire public sector to money purchase schemes and the UK economy would be almost overnight on the right path.Add in controls on immigration, massive cuts to welfare and the results would be seen quite quickly.
The fact is, neoliberalism, which drove this policy of independent central banks, does not care about people. The personnel and culture of central banks reflects a neoliberal worldview, and monetary credibility is treated by central banks as the supreme economic priority. The needs of the population of a country are structurally subordinated to that goal, and you could not rise to the ranks of those who make these decisions on interest rates in the Bank of England, or anywhere else, by holding different views. This is not accidental. It is by design. The institution selects for the ideology it was built to serve, and therefore, the people who are deciding upon our interest rates are those who just don’t care about you, or about me, or about anybody else in the UK, apart from the very rich, most of whom will benefit from what is going on now.
Yes – because those purveying crap like DEI, LGBTQ Alphabet Soup and Net Zero have a deep and abiding interest in what people really want?
Utter garbage – even by his sub abysmal standards
The interest rate hobby horse always comes out for a spin around the end of a month. Presumably some payment is due.
He’s not interested in speculation. Financial transactions are just another revenue stream that he can get his mitts on.
Bloke did get the Nobel for this.
They couldn’t find a rope & a convenient tree?
SUBS! He got the Fake Nobel.
(Bank of Sweden Economics Prize in Memory of Alfred Nobel)
The inflation we are facing
Higher prices is not inflation. Why doesn’t a professor know that?
Spud – yeah – twat – idiot – no idea
Can I just say something about “inflation”. The last of my April bank statements arrived so I started sorting things to do my accounts, and among them was a gas/electricity bill, so on the spur of the moment I decided to read the meters and – ho yus – update my spreadsheet.
I’ve now got five years of meter readings and prices, and from that calculations of usage and billage. I then played around to get it displayed as a chart. Here we are:
Yes, there are some mis-readings. If you look very carefully you can make out a winter/summer cycle in the gas usage.
But what seems obvious to me is that the in-total price I pay for my fuel is ganerally static with a downward trend. Gas has drifted down from 10p/kWhr to 7p or so, electricity has been more-or-less 33p/kWhr. My gas usage cycles between £2 a day and £5 a day, my electricity usage has drifted down from £4 a day to £3 a day.
And when you take into account “general inflation”, those nominal values are actually going down in “real money” faster. So, the screams about civilisation-destroying fuel inflation? My “lived experience” doesn’t support it.
To clarify, the data points are:
p/kWhr = {(usage since last data point)*(price/kWhr) + (days since last data point)*(price/day)}*(1+VAT) / (usage since last data point)
£/day = {(usage since last data point)*(price/kWhr) + (days since last data point)*(price/day)}*(1+VAT) / (days since last data point)
Thanks jgh. Always a pleasure to see REAL data.
I should get off my arse and check my own leccy bills.
jgh: do your data include the Standing charge ?
Yes:
p/kWhr = {(usage since last data point)*(price/kWhr) + (days since last data point)*(price/day)}*(1+VAT) / (usage since last data point)
£/day = {(usage since last data point)*(price/kWhr) + (days since last data point)*(price/day)}*(1+VAT) / (days since last data point)
I’ve track my electric and oil for the past ten years with weekly readings. There was as notable price increase of both around 2023. I installed a new oil boiler in 2020: comparing old and new (4 years consumption in each case), the new efficient boiler reduced consumption by around 17%, but this saving has been wiped out by the increase in prices of around 20%.
and here’s the oil chart.
Another data set: food has noticably increased, and the trend is increasing.
I was thinking about this while shopping this morning. I realised I’ve been waiting for the sardines to go back to the 45p I used to pay, I’ve been waiting for the apple pies to drop back under £1. The nice bread is over £2, it used to be £1.45, the discount 95p bread tastes manky. I’m so used subcounciouly to a week’s shopping hovvering around £20 that I think it’s going to take a councious effort to make myself feel “normal” paying.