Hey guys, it's Asha The UK is in financial trouble and it is getting worse. This morning, new inflation data came out and the Consumer Price Index stayed flat at 6.7% while all the experts were expecting a drop. Even more importantly, Cpih, the inflation measure that includes housing costs also stayed flat at 6.3% instead of going down And the thing is is going to get worse from here. I'm going to share all the data with you that shows this, but you can already see the newspaper headlines: UK Inflation unexpectedly holds steady at 6.7% amid Rising fuel prices UK Inflation in shock pors at 6.7% an easing of food and non-alcoholic drinks prices was offset by higher fuel prices for motorist.

First, the media is saying that absolutely nobody could have seen it coming except a random guy on YouTube who has been talking about this specific problem for over a year already and sharing all the data. And second, everyone is now blaming blaming fuel prices this month is fuel prices. That's the thing to blame for inflation. The Office of National Statistics says: Rising prices for motor fuel made the largest upward contribution to the change in the annual rates.

I Guess there is lies, damned lies. And then there's the Office of National Statistics because the data says something completely different. You can see in the official data that transport has gone from minus 0.7% year on year to plus 0.7% A pretty big swing and everyone is now saying that this has caused inflation overall to remain high. However, just to the right of this data, you can see these numbers and these are the month on-month movements.

You can see that in September transport costs fell 1.7% not the inflation. The actual costs fell 1.7% month of month and in September transport costs also fell 0.2% month on month. So while the overall index went up 0.5% the cost of Transportation fell. Transport did not cause inflation to stay high High It did not contribute to inflation being at the level it is.

The rising oil price is an issue for sure. We've got Wars We've got sanctions, We've got cutting in production by Russia and Saudi Arabia. All of these things are a problem. We will have to pay more for our petrol at the pump.

But as far as inflation data in September goes in this whole table, transportation is the lowest value. When it comes to month of month movements. it is a negative number. The only reason it looks like transport went up.

The only reason it looks like it's the biggest contributor to someone who doesn't understand statistics is because of what happened 13 months ago. Here is the same inflation data from a year ago September 2022. You can see that in September 2022, transport costs went down 1.7% When we see the same data 12 months later today, that minus 1.7% month-to-month movement from September last year comes out of the data for the last 12 months because it is now 13 months old and it is being being replaced by a minus 0.2% from September this year. So it looks like the overall Transportation prices went up 1.5% but that is not actually what happened.

The UK now officially has the worst inflation problem in the G7. The pound has fallen 8% against the dollar in the last 3 months as the UK economy has been collapsing. while the US economy is booming. 8% is a huge drop for such a stable currency in such a short space of time.

And with the way it's going, who knows how low the pound is going to go in the coming months. You can see detailed charts for currency exchanges, indices, and individual stocks in Weeble who are the sponsors of today's video. Buying stocks on Weeble is very easy. You just hit this Market option in the menu at the bottom and then either scroll down to have a look at all the different options or use the search bar at the top.

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Each share is worth a minimum of $5 so Weeo will pay you at least $30 just to try the platform out. To get this deal, use my link in the description or in the pinned comment. Now everyone is blaming High petrol and diesel prices for high inflation. So let's look at this a little bit deeper.

Here is the data that says behind the UK inflation data that was published today and table 11 shows the Rel relative weights of all the different components of inflation. You can scroll down to section seven, which is the transport bit and you can see the relative weight of all of these things in the latest report in the column on the right. Remember, these are the things that you are told are the things that are driving inflation at the moment. Here is Diesel and petrol 9.75 and 15 points.

and just below you can see transport services and it has things like buses and coaches and taxis in there. so the sum of all of them is another 19 points although that doesn't include trains that don't actually use petrol. But anyway, the sum of all of that put together including the trains is 43.75 points and the total index is 1,000 points. So the sum of all the fuel related and not very related Transportation costs in the overall inflation data is 4% and then you can look at table eight to see what the annual inflation per item is.

It's not hard, it's right there in the data. Scroll down to row 218 and you can suddenly remember that although petrol and Diesel are a little bit more expensive right now than they were maybe 2 or 3 months ago, they were a lot more expensive a year ago. which is what we're comparing data to in inflation. You know, a few months after Russia Invaded Ukraine Diesel price is down 13.4% year onye and petrol price is down 7.7% So yeah, High Petrol prices are not what's caused inflation to stay up.

It is not what's causing inflation to be high. That is incorrect. It is a lie. Prices are rising for sure on fuel and the year-on-year difference is getting smaller although it's still negative.

but petrol and Diesel are still adding a negative weight to inflation overall. So petrol and Diesel did not make inflation stay high at 6.7% but you know what did wages and mortgage costs. This has been a problem for a while now, but we are now seeing a really major inflection point in the data in the wrong direction. You can see that while inflation overall was flat Services inflation is staying High it increased from from 6.1 to 6.3% and we're now in a situation where Services inflation is equal to overall inflation and from here on out is going to be on the way up and it's going to be pushing the overall number up.

Here's the wage growth data from yesterday. Growth and wages went down slightly in the latest release from 8.5 to 88.1% overall. But the crucial Factor here is that wages are still growing and they're growing faster than inflation. and normally this is a good thing.

You know economy is improving countries getting wealthier people have more money, blah blah blah. But that is not the case right now because when inflation is running High wages growing above inflation is a massive problem because it exacerbates the spiral and makes things worse and makes your inflation go down a heck of a lot slower. Over the summer, the UK government has been giving huge pay increases to some public sector workers after they came under pressure because of inflation and you can see the public sector wages. The blue line here have gone up 12.5% year on-ear on on average, but a lot of that is one of payments and bonuses from this summer.

I Get it. But look at the green line. The line that's going up really fast. That's the line without bonuses and in the last month it's gone up from 6.6 to 6.8% So even the bit on regular pay without all the extras is above inflation and it is accelerating.

Private sector wages are up 8% year on-ear. But the thing is Wages growing faster than inflation and fueling inflation isn't even the biggest problem. The biggest problem is the mortgage collapse that we are about to witness now. I Showed this data a few weeks ago where I modeled out the people's fixed term mortgages which are going to end and how much of a payment shock those people are going to experience.

We know that the average length of the fixed rates in the UK was 3.6 years recently and I used a different distribution when I talked about it a few weeks ago and a few of you in the comments pointed out that I should have used more two and 5year mortgages which is fair. The truth is, it doesn't actually affect the data very much here. I made most of the mortgages on two and five 5year terms I Then took the Fca's mortgage lending statistics by quarter and figured out when people are going to get their big payment shocks by working out when people's mortgages will come off the fixed terms and what the difference in interest rates will be at the point when they come off the fixed term compared to when they first took out the mortgage. then I multiplied the total amount of mortgages coming off those fixed term rates by that payment shock and I Got this graph and this point right Here is Q3 You know the quarter that's just finished and people are now making their first second, whatever payment on that new, much higher rate and struggling.

And this point right here is this quarter. A lot of people are about to get completely wiped out with their monthly mortgage payments going up 50 to 100% in many cases. And this is why it is really important. If you look at inflation data, there is this line called housing and Household Services It is sitting at 5.7% year on-year Just underneath it says of which owner occupies housing cost and this this number has just increased a little from 4.8% to 5% and back in the table of Weights you can see that rentals and owner occupy costs have weights of 64 and 160.

So the sum is 22.4% of total inflation. This is a huge part of the overall total, but around onethird of the people in the UK do not have rent or mortgage cost, People who own their homes, rich people, people in various sours are supported or paid for accommodation, all kinds of different situations. For people who have a mortgage or who pay rent, this number is not 22% It's more like 33% on average. So we know from the data that over the next few quarters UK households will suddenly have a massive payment shock and start having to pay a huge amount more in mortgages.

and as a subsequent consequence of that in rent as well. Whether people can actually afford to make those payments is a whole other problem. We're going to have to talk about that another day. But when those payments start going up 30% 50% 100% tell me what your payment is going up.

in the comments. Depending on what your mortgages, those owner occupier costs are going to explode. This is not a guess. This is not some kind of economic guesstimate that I'm making.

This is a fact: Because these mortgages already exist, they're already running, and we already know that they're about to come off their fixed turn rates from the data. So what happens when the housing bid of inflation goes from 5.7% into double digits and that bit of inflation by itself is almost a quarter of the total number? For people who live in the South, that's more like 40 to 50% of total inflation. As far as they're concerned, those people are going to get double screwed. House prices are already coming down.

You can see in the fresh data for August that got published today that house price growth is down to 0.2% That is the lowest figure in over 10 years. People can't afford to buy houses pushing prices down and they can't afford them because of the high monthly mortgage payments. And given the situation, it is highly likely that price prices will go negative in September. In fact, they have already probably gone negative in September.

We just haven't got the data for it yet. House prices are starting to fall for the first time since the financial crash, but because of the high interest rates, falling house prices are irrelevant when it comes to your monthly mortgage payment. Your monthly mortgage payment doesn't reduce just because your house is not worth as much in the inflation data. There is this chart that shows inflation data broken down by category and you can see that the reason the only the entire reason that inflation has recently gone down is because this green bar in the middle has got smaller.

The green bar is the housing and household services and here is that green bar broken down by its components. You can see that last year we had this flash huge increase in the blue stuff electricity, gas and other fuels. This is when the gas prices and oil prices went absolutely nuts after Russia Invaded Ukraine Now those prices have come down and earlier this year R Soon, I and Jeremy Hunt and the UK government and the media were all celebrating because the overall inflation numbers were coming down and they were patting themselves in the back saying they've done their great job. But the problem is that the overall number was not being driven by a long-term problem.

The real problem was always lurking. Underneath that problem is the purple and green bits on this chart. These are rents and owner occupies. Housing cost.

These are growing, but they have only just started growing. They haven't even really anywhere near hit the full extent of what is about to happen. From what we're seeing in the data as people come off their fixed home mortgages, this part of inflation is going to go up a lot. This is what is already causing inflation to stay high.

These two parts are now the biggest contributors to inflation overall, and from here they will become a bigger and bigger chunk of the overall total. This is what's driving inflation, not the price of petrol, and here is where the data is going to get nasty. Every year, the weights in the CPI get redistributed based on what proportion of people's budget is going to what, which is kind of the right thing of doing. Maybe the methodology is not ideal, but that's what happens and next year is going to be the same and the weights of rents and owner occupier cost are going to increase because those have been steadily going up.

People are spending more and more of the money that they take home on paying rent and paying for their mortgages, so the weight of that housing data will increase in overall inflation and the actual values. The infl of those items will also increase because we know that the fixed term mortgages are running out. So next year mortgage costs are going to become a huge driver of the official inflation data because those two numbers are going to multiply the weight and the actual inflation of the individual items. and I Am sure when that happens, the UK government and the media will once again be really surprised because absolutely nobody could have seen it coming.