Hey guys, it's Sasha Yesterday the UK inflation Daisy came out and inflation fell from 7.9 to 6.8 percent. At the same time Cpih, the inflation that includes housing that is more comparable to other countries like the US fell from 7.3 to 6.4 percent. And of course, everyone was wildly celebrating. Because the UK media and the government don't actually know how to do basic reading comprehension.

The Guardian went with UK inflation Falls sharply to 6.8 percent as cost of living pressures ease. Hurray, let's do some celebrating. And the Ft said UK inflation Slows To 6.8 in July as Energy prices fall. The truth is, the data behind the fall looks really ugly and actually got worse this month just before I explain how bad this is and why this data is bad.

A day earlier, new data came in saying that UK wages grew at 7.8 per year in the period from April to June this year. This is the fastest rate of wage growth since accurate records began 22 years ago, and this is also a really big problem. something that I've been talking on this channel for quite a long time now. Although if you listen to politicians, you wouldn't know it, you guys Prime Minister Rishi Sunak said that there was light at the end of the tunnel for the millions struggling with the cost of living.

According to the clown that destroyed the UK economy in 2020, wages growing at the fastest rate we have seen is a good thing and I can see why he's saying it. Many people don't actually understand how Economics work, so this kind of statement works for the masses. People hear that wages are growing and this kind of sounds good, right? You're going to get more money in your pockets and we're all gonna get richer Am I right? The average person in the UK is now earning 7.8 percent more than they did last year. That's over 2 000 pounds per year on average if you use the median salary of 27 1756 pounds a year.

And the reason this is a really big problem is that the underlying core parts of inflation the important stuff is still going up. Some of it hasn't even really started going up while the media is busy celebrating exuberantly. And the reason that this is a big problem is this: We now have a situation where inflation is still high and the core elements of inflation are not showing good. Trends Pressure on the housing market is Bonkers at the moment and mortgage payers in the UK are about to start paying double when their fixed term mortgages run out.

This will mean a large number of mortgage payers will physically not be able to afford to pay their mortgage. This is happening. This is coming, but nobody is really talking about it. Energy companies are stretching out their profiteering as far as humanly possible.

Food price inflation is still insane. It's running at 14.9 percent in the last 12 months in the date he published yesterday. and the big problem is that we are now in this High inflation scenario where the services part of inflation is not going down because of wage pressure. This is what a wage price spiral looks like.

Wages are increasing. You can see the problem on this chart from the Office of National Statistics, and the pace of increases is itself increasing. This is a really, really big problem because the upward pressure on inflation is now following a non-linear upward trajectory. and I cannot stress enough how massive this problem is.

And even worse than that, wage growth has now outpaced overall inflation for the first time in this whole crisis. And if you look at yesterday's inflation data, pretty much the entire drop in inflation can be attributed to just three things: One, food is not going up in price quite as insanely as it was in the previous month, too. Communication costs are down, and three housing costs have come down because the energy price cap went down in July. But here is the issue: if you look at the parts of inflation where wages are a significant part of the total cost, inflation on these is staying flat or actually is going up overall not coming down, Restaurants and hotels up from 9.5 to 9.6 percent Health up from 8.2 to 8.9 education stays flat at 3.2 percent, and Recreation culture is marginally down from 6.7 to 6.5 If you look at the All Services line, the UK's inflation data has increased from 7.2 to 7.4 percent.

It's gone up. The month of month is growing at 1.0 in July 2023. If you annualize 1.0 you get 12.7 percent. So Services Inflation in July ran as an annualized rate of almost double what it went up by in the previous 12 months.

This is an extremely dangerous scenario and I Know that there will be someone in the comments section who will say that the wage growth data is because because of they did not see an increase. And you know the four people that they know have told them that they didn't get a bump either. And this is because the reality is even more Stark than the data. The reality is that the 7.8 average wage increase is made up of a whole load of people getting pay increases of 10 or more with other sectors or other companies running behind.

And these are the companies are about to see. Their employees absolutely lose their when they can't afford to pay their mortgage or pay their rent or feed their kids and they will see those employees demand things. They will see those employees leave. They will see employees demand Pay increases.

Those employees will proactively start looking for new jobs. The companies will proactively start hiking, pay new job vacancies are trending down, but they are still above pre-pandemic levels, so there are plenty of jobs going around facilitating this whole Merry-Go-Round Unemployment has gone up slightly, but is still historically low at 4.2 percent, and the economic inactivity rate is down at 20.9 Nine percent. These are all signs that work is out there and the job market is not Contracting not Contracting fast enough. Anyway, at the same time, companies are not laying off staff, redundancies are at historically low levels.

The bank of England base rate is now at sitting at 5.25 and the current market expectations is that that rate will go to six percent. This will cause even more misery to those who already can't afford to pay their bills, But now we have the added problem of wages spiraling. These wages are spiraling because the UK government has failed people by letting their mates in the city get rich and not doing absolutely anything to solve the underlying problem. Giving speeches in Parliament and pretending that nothing is happening is not an actual solution.

After energy companies were allowed to increase rates, energy companies are now posting record profits. Who could possibly have seen this one coming? Look, Centrica, the owner of British Gas is is now magically making billions of pounds out of thin air because commodity prices have fallen. Well, no, they take the piss by actually printing in their quarterly data that they are profiteering. Have you noticed how petrol prices haven't come down even though oil price came down after the massive Peak following Russia's invasion of Ukraine? Well, BP has been posting insane profits themselves every quarter and last year's profits more than doubled to 23 billion pounds and Shell reported a profit of 36 billion Euros, which is the highest in their 115 year history.

But you know, the government and the weirdos in the comments section will defend the energy companies saying that this is all a complete coincidence and the record profits have nothing nothing to do with consumer prices being high while the commodity prices are slumping. The reason this is really important is that the wage pressure is now going to make it significantly harder and I mean significantly harder for the bank of England to push inflation down. And while everyone is Project catching a six percent interest rate Peak the data is indicating that they may have to go a heck of a lot higher. Richard Sunak made a promise to halve inflation this year with absolutely no idea how he would actually do it.

I Think he looked at the data and what's happening in the US and just thought, well, the UK is just going to follow is an easy promise that will obviously fulfill itself. But you know what? It turns out that when you get in power, you actually have to work and you actually have to know what the it is that you're doing. Oh my goodness. The reason we know that Rishi is full of is that we are now eight months into this year and he has enacted precisely zero policies to actually attack inflation.

At least if he was trying. If he was actually doing something, making genuine, major decisions as he should have done by now, maybe there would be some kind of way to say, well, look, the guy is trying, but as it stands, this is just indefensible. Interest rates are high, and the moment that interest rates go up, everyone's Bank goes and sends them an email within seconds to tell them that the standard mortgage rate is going up. Just in case you forgot, your credit card company will immediately increase that interest rate on your credit card that is linked to the bank of England base rate.

New loan prices will go up within seconds on all the comparison websites, but at the same time, the banks don't happen to pass on anything to people that hold money in the bank. Funny that, huh? Which means the banks are also busy posting record profits. You guessed it right, while families across the UK are genuinely struggling to make ends meet in the worst inflation crisis in a generation, Rishi's friends at the big banks are popping champagne. Look, HSBC profits have doubled compared to the last year.

What a coincidence! The overnight rate for Banks from the bank of England is 5.18 Right now, the overnight rate is the rate that you can get if you go and put your money in there overnight. It literally does what it says on the tin, but with HSBC if you want to actually be able to access your money I Don't know. Overnight without out, you know, locking it away for a long period of time, the best rate that you can get is two percent. This is disgusting, but don't you worry Parliament Called in some Bank execs and told them off so that will teach them a lesson.

The Bank of England is now between a rock and a hard place. They have no choice but to continue increasing rates. There is absolutely no other option available to them, but in a moment of Crisis monetary policy is not the only available tool because the government is in charge of fiscal management of the economy and the government is in charge of Taxation and of the budget of many things. and the various government agencies are in charge of regulating markets so that they don't take the piss and profiteer of people's misery in the worst financial crisis in a lifetime.

And where is the government? Well, Reshi is busy making statements that there is light at the end of the tunnel as we read yesterday and at some breweries he talked to said that they are doing okay and that probably means that the economy is just fine. Don't you worry, everything is just fine. The media will be busy celebrating inflation data without looking at the underlying drivers as they have done over the last two months every month. right now, about 200 000 people are seeing their mortgage payments roughly double.

This problem is now going to get worse when the bank of England goes and increases rates again. Over the next couple of meetings, the government is telling you that housing cost inflation is sitting at 6.8 percent and for some weird reason, nobody is talking about the fact that that number has absolutely nothing to do with the number that we are going to see when it starts exploding over the next year. Rent prices are going to have to follow mortgages because buy to let landlords are going to start losing huge amounts of money every month when their mortgage payments double, but the rent yields stay flat. So those buy to let landlords are going to have to try to hike rates as much as possible or they will be forced to sell properties, kicking the tenants out and forcing the final accommodation for double the money.

Wages rising in the fastest race in the last 23 years. While inflation is getting worse is not a good thing, it is a big problem and this problem is only getting worse in the private sector. Wages grew by 8.2 percent over the last year and the government is now being forced to play catch-up to give increasing pay deals to public sector workers. And the problem with high wages is not just that these wages cost more to the companies, it is not just that the private sector is the problem because when everyone's wages are increasing fast, it means that those people have more money in their pocket than they did before the wage increase and they are able to spend a little bit more of it now.

I Know it's tough, but they are still able to spend a little bit more of it. Having more money to spend creates an upward inflationary pressure all by itself. This is what started this whole inflation spike in the first place when Rich Sunak was busy printing money at the fastest rates in history during covert and dishing it out right, left and Center in furlough payments on the back of completely unnecessary lockdowns which was a massive, massive mistake. Money was handed out in corrupt PPE contracts filtering its way through money was given to Banks to dish out risk-free business loans to whoever it is that wanted one.

When more money filters into the economy ends up in people's pockets, they will go and spend it. and this is the reality that we now find ourselves in. The solution that the government thinks is going to solve this is to continue doing the same thing and putting more money in people's pockets. When I explained this problem several months ago before it happened, nobody cared.

Nobody paid attention. People call me a clown. But now that is happening Now that has happened. we're being told that nobody could have seen it coming.

This is a global problem. even though the UK's inflation problem and the inflation waste spiral is significantly worse than the likes of the United, States or many other developed economies. And of course, the government's lack of action is absolutely not in any way to blame while they continue doing absolutely nothing, letting the problem just get worse every month. So that I keep sitting here and questioning what the actual is going on and what is going to happen in six months time.

When we are in the middle of the winter, every day, more people find that their mortgage payment is now higher than their actual take-home salary. What happens if wages in the private sector start growing at over 10 percent? Will companies just swallow the extra costs? Or will they pass them along through higher prices leading to more services, inflation, and eventually Goods inflation too. What happens when hundreds of thousands of people can't afford to pay even the interest only version of their mortgage? Which is the solution that Jeremy Hunt's big brain came up with. The answer is painfully obvious.

painfully obvious.