Sunday 7 September 2008

Inflation and Recession - Look Through the Statistics to Find the Real Story

Two pieces of data reaching my desk today have once again made me question the value of headline statistics.
Firstly, the Organisation for Economic Co-Operation and Development has predicted that Britain is on the brink of recession with negative growth forecasted for second half of 2009. This is the first time that any of the major economic forecasters have used the "r" word. The OECD is very bearish when it comes to the UK, especially when compared to the US, which has predicted growth will rise to 1.8%.
However, also this morning I have watched score of videos on Youtube from the American politician, Ron Paul with quite opposing views. I've also seen Wall Street economists blast the Whit House for cutting figures released to suit their own political agenda. This is something we see regularly here in the UK too. Note that the children are now to remain in schooling to the first leaving date after their 16th birthday - who think this decision may have been made to massage unemployment figures on the brink of a recession?
Secondly, the OECD predicted that inflation would see some moderation, assuming commodity prices stay where they are. Note the italics! There is more chance of Elvis Presley winning the Euromillions than commodity prices standing still. Oil is considerably more expensive than it was last year - no argument. Primary industry is spending more to grow, dig or farm hence we will pay more at the checkout counter. Also, even if inflation were to fall back to 3%, it doesn't put any more cash in our pockets. Quite the opposite in fact. Imagine if a tank of petrol costs £100 in year 1, and then rises to £110 in year 2 because inflation is 10%. If, in year 3, inflation falls to 3%, then a tank now costs £113.30 - it doesn't recede back to £103.
At times of financial turmoil my recommendation is to get the fundamentals in place. Look after shelter, food and fuel before anything else. If you have a mortgage then don't give a hoot about what car you are going to get next year, what holiday you are going on, what rate you can get on an ISA, or what is going to happen with inflation. Instead, use absolutely every spare penny you have to bring down your mortgage debt.
By doing this you will at least ensure you have a roof over your head, whilst others can't sleep at night with worry.

1 comment:

Free Forex Trading Tips said...

We are a bunch of volunteers and opening a brand new scheme in our community. Your website offered us with valuable info to work on. You have performed a formidable task and our whole neighborhood will be grateful to you. Free Forex Trading Tips