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Inflationcould fall faster than the Bank of England’s prediction

The commodity prices have so far gone down by 9% from the peak point, earlier this year. Also, there is constant sliding situation in terms of prices. Hence, there is a possibility if inflation to fall faster than the Bank of England expects in future months within this year. Also, due to weak wages and job crisis, the people’s standard of living is getting squeezed.

The urban middle class is expanding in upcoming economist. This has created a major impact on a wide scale of commodities. The level of consumption in big emerging markets is presently fractions of those in advanced economies. There is still time to see things happening on a common note. Hence, the demand for commodities is expected to remain sturdy for quite some time. The economic recovery situation is going to move along throughout this year 2011. Hence, the commodity prices have been dropping lately.

Every year prices have been increasing and this summer it is going to increase to about 5%. However, the Bank of England is in no mood to raise interest rates with the present economic scenario. Last December, there has been a lot of heavy snow in UK and so the level of output has been flat over the past two quarters. It remained about 4%. Hence, the UK consumers are feeling the heat of high prices without any compensation from a hiring boom or increase in wages. Commodity prices are low, which is about 9%. Oil prices continue to move down. Hence, inflation is expected to fall faster than the Bank of England expectation. Also, based on the UK wage chart, wages are weak and jobs are not increasing in numbers. The standard of living is getting further tighter.   

According to the Bank of England, higher food and energy costs are temporary and this hike in cost will die down. Central Bank has forecasted that CPI will rise to 5% this year. Hence, there is a possibility of seeing a hike taking place in future. The currency remained stable with regard to the IMF managing Director Dominique Strauss- Khan being arrested on sexual assault charges. Strauss- Khan was supposed to attend the EU Finance Minister’s summit which is supposed to be held in Brussels. However, his place has now been replaced by Deputy MD Nemat Shafik.

The Euro recovered some of its losses and was trading above a seven – week low against the dollar currency. The positive output with regard to Euro happened because the European Finance Ministers agreed on a rescue package worth 78billion Euro for Portugal. However, nothing much was done for Greece’s debit crisis. Based on the meeting of European finance ministers, policy makers have come to an understanding that Greek’s sovereign debt load is unsustainable. According to last week, it was partly speculated that the original bail out for Greece could be widened in order to cover up its short fall in the year 2012 and 2013.

It is a known fact that Greece’s debt burden is unsustainable. EU leaders are hoping for some sort of voluntary restructuring or re-profiling of bonds to happen instead of extension of EU/IM loans or a hard restructuring even to take place. The idea of mechanisms being in place for an orderly restructuring to happen will not take place until the introduction of the ESM in 2013.