Investment Newsletter February 2013
An inflated opinion The Bank of England’s latest inflation report finally admits what we’ve been concerned about for some time. Inflation continues to be worryingly persistent and will remain high for the forseeable future. Each time the Bank reports on inflation they provide a “fan chart” showing a predicted range with the expected probability of each part of the range. The chart below shows the predictions from February 2012:
Essentially, the “fan” is divided into bands. Each band has a 10% likelihood. The darkest red is the central prediction, that which is deemed most likely. The actual inflation is expected to be within the predicted range 90% of the time. The Bank’s central prediction for current CPI from this time last year, was around 1.7%. It is actually 2.7%. This is out by around 60%. They have persistently predicted lower inflation than has actually been the case. The latest report shows a markedly different picture:
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