Hey guys, it's Sasha UK Inflation just came in at 7.9 and the reality is horrific. The majority of the index is actually going up and it's looking really ugly because UK inflation is becoming a very serious problem. The root of what's driving inflation is getting worse. But if you go and read the media, everyone is celebrating that Inflation in the UK is at 7.9 This is a good thing, of course, not a single one of these journalists actually dived into the numbers, try to understand exactly what is happening, and instead they're all just parroting whatever the government party line is.

Financial Time says: UK Inflation Falls more than expected to 7.9 in June It's nice that it fell more than some random analyst somewhere. expected right. Makes a real difference to people not being able to afford to buy food in the shops. Politico says finally, UK Inflation comes off the boil.

Apparently this is a relief for the bank of England and ahead of its August meeting inflation is basically done. The telegraph weighs in with inflation, forced a 16-month low with hopes of dramatic price drops on the way. So let's look at the actual numbers and let me explain why everyone is celebrating way too early. First, here is the overall inflation data and you can see that the CPI the Consumer Price Index fell from 8.7 to 7.9 percent.

And just below that, you can see that food has fallen from 18.3 percent to 17.3 percent. This is apparently a course for celebration that in the last 12 months, food has only gone up by 17.3 percent on average. and the drops in inflation on food are pretty small given the overall number. A big chunk of that came from a drop in milk and dairy products.

You can see in the detailed data that inflation on butter fell from 14.1 to 7.1 percent in the last month. whole milk is down from 20.5 to 18.2 percent, low fat milk down from 28.5 to 21.7 Also big up if you like your lamb and goat meat. Inflation on those is much lower than on beef and pork. Anyway, on average, food is still going up 17.3 percent in the last year.

but look further down the table: Alcohol and tobacco 9.2 percent which hardly moves from 9.3 last month clothing and Footwear up from 7.1 to 7.2 percent. Housing and household Services was 12.1 percent now 12.0 Communication is up from 9.1 to 9.5 percent Recreation and culture hasn't moved. The majority of the categories that make up the inflation index are not going anywhere. The big movers are food and transport.

Transport went from plus 1.2 percent to minus 1.8 percent. Because fuel is cheaper, petrol and diesel prices have come down a bit. an energy costs have dropped. So we're seeing that reflect in the transport data and remember UK CPI does not include housing which is the biggest cost for most people in the UK If you include housing.

You have to look at the CPI age index which is down from 7.9 to 7.3 percent And this is where the big problem sits. Within the CPI age index, you have this line called Housing and Household Services and just underneath it you can see of which owners occupies housing costs. According to this index, inflation on this specific bit is 4.4 per year. This is the number that reflects the cost of living in your house.

But if you look at the numbers in detail, you can see that this bid is made up of four parts. The first part is called actual Rentals for Housing. Ignore the naming here. It doesn't really mean rentals just means the cost of living in your house.

It's not just people paying rent, but then there's also maintenance, water supply, electricity, gas, and other fuels. And yes, you can see that after the UK government dropped the energy price cap, the energy inflation dropped from being 85 up to just 24. But in the last three months, this number really hasn't moved anywhere. And this is because the energy companies just charge whatever the maximum is and ignore the fact that gas prices have now collapsed and continue collapsing and every other Key Energy commodity has also collapsed.

But hey, let's not look at that. Let's not talk about the profiteering greedy. Let's instead look back at the detailed data. The problem is in this line: 4.1 Actual Rentals for Housing Because according to this line, the price of living in your house is up 5.5 year on year.

But we know that 24 months ago, mortgage rates were sitting at one to two percent. They were sitting there for the best part of a decade. according to money. Fact: the average two-year mortgage raises a 6.7 and this is going to go higher as the Bank of England continues raising rates.

and pretty much every person with a mortgage in the UK has a fixed term of two to five years. So when it's time for everybody to remortgage, you either have to go on to the standard rate which is 1.5 or 2 above whatever the Bank of England base rate. So at the moment that will be at around about seven percent or you have to go get a new fixed deal and lock in an interest rate of 6.4 or whatever it is for two to five years. And the difference in interest rates because they started so low and because they are now relatively speaking so much higher.

That means that the average the typical mortgage is going to go up by about 60 to 70 percent when it's time to remortgage and because the average mortgage is two to five years every month, more people are going to see their mortgage prices exploit because their mortgage is going to come up for Renewal. This is just the start of the snowball. We haven't even seen it hit the inflation data. Inflation data says that the price of living in your house is only going up 5.5 percent at the moment.

This number is nowhere near the actual impact some people are now beginning to see and so this figure will explode in the coming months and it's going to blow up household budgets which is even worse. But here is where it gets worse. yet because the latest data from the office statistics says that the average wages in the UK have gone up 7.3 percent year on year. This is a huge problem because you can see that wages have started accelerating in the last few months and now wage growth is equal to the Cpih inflation that includes the cost of housing.

Last week Richard announced that the public sector workers are getting a six to seven percent wage increase as well. The reason that this is all a massive problem is that we are now entering an extremely dangerous wage price spiral. Other major economies like the United States for example, managed to avoid this happening because wages were going up significantly lower and slower than inflation and inflation then collapsed down before the inflation wage spiral had a chance to take hold. But in the UK, we are now seeing this and this is a very serious issue because the people who sell you goods and services have to pay their staff and they have to pay their staff 7.3 more than they did last year on average and so they have to pass that on to you in increasing prices.

As prices go up, people will ask for their wages to increase even more because they now again can't afford to pay their bills. and you can see how that cycle just gets worse and worse and worse. We are now seeing this come through in the data which is worrying. Wages are up equal to the rate of inflation and wages are accelerating.

You can see on the year on year chart the trend since December last year is looking very worrying and the UK economy is primarily a Services economy. The vast majority of people in the UK work in some form of services and wages are the primary driver of inflation in services. And look back at that inflation data published this morning, services are at 6.3 percent, They have not dropped. Unlike the average inflation index, the one month rate in June 2023 is 0.5 which is exactly the same as it was one a year ago.

And remember how we saw earlier that the majority of inflation categories are not reducing thing? Well, this is the Crux of the problem. because of how UK mortgages work which is different to other countries like the US. The UK is about to get whacked in the face with a mortgage crisis. We can already see this data.

it just hasn't happened yet. Starting this winter is going to get seriously ugly. I'm sure everyone's going to be massively surprised. The media will go and say who could have seen this one coming because huge numbers of people will see their mortgages go up 60 or 70 or in some cases a hundred percent.

The average household spends 33 of their money on mortgages in the UK. If you live in London or in the Southeast that can easily be 50 or more people who are renting are spending roughly similar amounts of money. So if that 50 or whatever, the number that you are paying doubles the technical term for the situation is you are completely and this is exactly what's going to happen. As these fixed time mortgages come off their fixed terms, the UK government is busy congratulating themselves, releasing press statements how everything is so great you know inflation drop more than expected.

Whatever that means. The Stark reality is that the numbers are hiding a big fat problem and that problem is actually getting worse. I often feel really weird when I talk about these things because I just look at the data and I see a massive off elephant in the room. a huge problem While everybody in the city, everybody in the media is busy wildly celebrating, look at the pound keeps going up like there isn't a huge inflation problem in the country that is much worse than any other developed economy.

The government would much rather do a Victory lap and Pat themselves on the back than take urgent action. And taking urgent action. is what is absolutely necessary right now. It is also something that is not happening right now.

But I Guess as per the new UK tradition, there will be some Scandal before too long and Rishi Sunak is going to get kicked out of being prime minister because the average tenure of a UK prime minister these days is about three seconds so he doesn't give a about actually solving the problem. That's not something he will ever have to actually deal with. The likelihood is he will be long gone by the time this problem is a real big problem. and even if he is not long gone, he will just blame everybody but himself for the problem that he created while he was Chancellor and then exacerbated while being prime minister.

If the UK is not careful, this situation can get out of hand quickly. Argentina Lost control of their inflation which has now turned into hyperinflation and sits at 116 percent. Turkey had the same problem because the government didn't actually address inflation and sat there pretending that nothing was happening. And here is the Venezuela inflation curve that hit 350 000 in 2019.

You can see that it has come right back down right now. and if you zoom into the last year, inflation is now at only 400. The UK economy is now completely separate from the EU. There is no wider block to stabilize things.

Prop things up. Brexit means that the UK government is busy doing insignificant trade deals with Australia, which you know, sounds nice. The media likes it, but achieves absolutely nothing in reality and does not in any way tackle the big elephant in the room. The UK economy is sleepwalking into a Minefield, but the guy's in charge know that they will jump ship before they actually get there.

They're busy sticking fingers in areas and pretending that nothing is happening. la la la. everything's great. Instead of taking urgent action.

Jeremy Hunt The guy who has never worked a day of his life in finance and is now in charge of the entire country's finances is telling people that if they can't pay their mortgage, they can pay interest only for six months. This is just so bizarre. This is not any kind of solution to the problem. It doesn't address anything.

It will make the banks a bit of extra money. Nice for the banks, but it doesn't solve anything. It doesn't address the issue that is underlying the problem. Confused.com Just published data saying that car insurance prices are now exploding up 40 in the last year.

Actual rent prices in the UK are increasing by 10.4 percent in the last year. Double what the official inflation data is saying. Corporate insolvencies are up at levels we haven't seen since the financial crash. But hey, nothing bad is happening, right? Because remember, goat meat is only up 5.8 percent in the last year.