Inflation just been annouced at 4.4%!

[neonplanet40]

Well have to say this suprised me. Alot higher than expected. I was thinking in the region of 3.9 - 4.0%. Something needs to be done now before it gets way out of control.

What do you guys think? You see it getting any better anytime soon?

[MadduckUK]

Well have to say this suprised me. Alot higher than expected. I was thinking in the region of 3.9 - 4.4%.

sooo... thats what you expected then?

[TheAnimus]

inflation indicators used by this government have been such a bullsh!t measure, many institutes actually have their own!

We all know its got to be 9.6% because thats what the MPs gave themselfs as pay rises.

[kalniel]

Well have to say this suprised me.

Interesting that you're surprised when it's within your expected range

We all know its got to be 9.6% because thats what the MPs gave themselfs as pay rises.

I thought they didn't do that this year?

NS&I is looking an attractive savings option

[neonplanet40]

Sorry i meant 4.0%

[menthel]

I would hope that inflation may slow slightly now that oil prices are no longer quite so crazy. Then of course Labour could just balls it up more.

[kalniel]

I doubt there's anything governments can do to affect this - for better or worse. Oil prices are coming down quite a lot now and I agree some of that will eventually have a knock on effect on inflation, as will lack of consumer confidence. It'll take a hit to the economy to let consumer confidence have an effect though - possibly this will be mitigated a little by lower oil prices, but I hope the BoE hold their course for a little while at least.

[menthel]

I doubt there's anything governments can do to affect this - for better or worse. Oil prices are coming down quite a lot now and I agree some of that will eventually have a knock on effect on inflation, as will lack of consumer confidence. It'll take a hit to the economy to let consumer confidence have an effect though - possibly this will be mitigated a little by lower oil prices, but I hope the BoE hold their course for a little while at least.

Unfortunately the government can do something- make it worse. Still lets wait and see!

[Daymonkey]

Times tells me it's more than predicted to go above 5% as costs of products leaving factories is started to steadily increase.

[Saracen]

....

What do you guys think? You see it getting any better anytime soon?

Yes, and no. Daymonkey is right - factory gate prices are up, and that hasn't fed through into the figures fully yet.

Also, while petrol prices are coming down a bit, and that drop hasn't worked through either, food prices are still high and utility prices are going up, and that is still to hit the figures. So, personally, no, I'm not expecting them to come down any time soon.

But there's something else about inflation figures that might not be obvious at first sight. When inflation figures come down, it does not mean that prices have, it just means that the rate of increase has slowed.

Suppose theirs only one product in the economy you can buy, and it's a widget. Currently a widget costs 100 units. The price goes up by 50% this month, so inflation is 50%, and it'll now cost 150 units.

But inflation is a measure of the rate of change, so if the price doesn't go up again for 12 months, that price increase has now worked it's way out of the year-on-year figures, and we now have inflation of 0%. Great, 0% means things are cheap again. Well no, because they still cost 150 units.

Obviously, it's a very simplistic example, but the point is clear. Prices have shot up due to much higher than expected levels of inflation. Many things have gone up by 10-15%. and some more. This especially applies to foodstuffs. But even when inflation does drop right back, there's nothing in that to say that food prices (or prices of whatever) won't remain at those high prices.

Obviously, inflation figures are a very broad measure and, as someone said, a very artificial one .... especially the CPI. None of us are likely to have the exact measure of items that the government measure to calculate the CPI. But, if you have the records, you could do your own personal inflation measure, by adding up you bills and comparing over time. If you look at mortgage/rates, utilities, fuel, insurances, food, clothes, etc, and add it up for the year, you'll get an idea of how you're hit.

And obviously, the more dependent you are on things that have gone up a lot, like utility bills and food, the worse hit you'll be. That, typically, will be the least affluent, because those items will be a far larger proportion of disposable income than it is for the affluent.

And, even once inflation has come down, even if it went to zero, unless those core prices come down (and I don't see that happening any time soon, if ever), then you'll continue to suffer from the impact of current inflation for several years to come unless you're lucky enough to get pay rises which match inflation .... and on a large scale, that in itself is inflationary.

So to conclude, those on low incomes will see their standards of living, such as they may have been, get worse due to current inflation, and they will likely stay worse, even if/when inflation rates drop.

Cheerful wotsit, aren't I?

[greenalien]

I can't understand why BOE interest rates haven't increased - seems like the banks are whinging because they haven't got any money to lend out, surely putting up interest rates will encourage more people to save? Furthermore, if saving looks more attractive, that will encourage speculative investment out of commodities and into savings accounts, thus bringing inflation down. Is my logic flawed, or are the BOE MPC just not doing their job properly (or being leaned on by the politicians...)?

[Saracen]

I can't understand why BOE interest rates haven't increased - seems like the banks are whinging because they haven't got any money to lend out, surely putting up interest rates will encourage more people to save? Furthermore, if saving looks more attractive, that will encourage speculative investment out of commodities and into savings accounts, thus bringing inflation down. Is my logic flawed, or are the BOE MPC just not doing their job properly (or being leaned on by the politicians...)?

Interest rates haven't increased because the fear is it'll push, or at least help push, the economy more slowdown into stagnation or even recession.

The BofE has a problem. Inflation is rising, and you increase rates to bring inflation down. But the economy is slowing, and you cut rates to stimulate economic activity and growth. But, if you increase rates to cut inflation, you might trigger that recession. If you cut rates to stimulate the economy, you aggravate inflation and it's already bad enough.

Then, you have to think about whether a rate increase will have the effect you describe, even ignoring the other effects. Yes, increasing rates may well encourage savings, and yes, some bank lending comes from savings. But most of it comes from inter-bank activity, and while those securitised sub-prime "assets" are floating around, unvalued and pretty much un-valuable, inter-bank lending has pretty much dried up.

So .... in my view, the BofE has taken a view. Right now, the best thing they can do is nothing .... except cross their fingers (and toes, and anything else crossable) and hope.

For the reasons I described earlier, the effect on inflation from previous price rises will work out of the inflation figures over the next year or so, and in the absence of further increases (a dubious prospect at best) will return to normal. Then, they can cut rates to stimulate economic growth. That, in my view, is the plan.


See , we're kind-of in, or at least tottering in the direction of the economic nightmare of stagflation, where you have both stagnation and inflation at the same time. Then, as I said, the problem is that whatever you do to mitigate one problem aggravates the other. And either is economically unpleasant, and painful. You're pretty much damned, at that point, whatever you do. So the Bank have gritted their teeth, crossed their fingers (etc.) and adopted the sound economic strategy of hoping like hell it sorts itself out.



PS. Now you see why Gordon Brown is reported to have once said "There's no such thing as a great Chancellor. Just one who got out in time". Your timing sucks a bit, Gordon. Blair's, on the other hand, is starting to look positively stunning. He got out in time to avoid most of the flak, but timed it juuuust perfectly for screwing Gordon. I wonder if he'd lend me his crystal ball.

[badass]

For the reasons I described earlier, the effect on inflation from previous price rises will work out of the inflation figures over the next year or so, and in the absence of further increases (a dubious prospect at best) will return to normal. Then, they can cut rates to stimulate economic growth. That, in my view, is the plan.

See , we're kind-of in, or at least tottering in the direction of the economic nightmare of stagflation, where you have both stagnation and inflation at the same time. Then, as I said, the problem is that whatever you do to mitigate one problem aggravates the other. And either is economically unpleasant, and painful. You're pretty much damned, at that point, whatever you do. So the Bank have gritted their teeth, crossed their fingers (etc.) and adopted the sound economic strategy of hoping like hell it sorts itself out.

As has happened many times before, when things get like this, you can;t stop the inevitable. the BoE's job IIRC is simply to control inflation. They should do that. Yes, it will send the country into recession but thats gonig to happen anyway. The quicker we hit the bottom of the trough, the quicker we can rise again. Doing this now will not make rock bottom any worse or last for longer. It will simply make it happen sooner and get it over and done with quicker.

What's worse? Several years of stagflation eventually bottoming out in say 5-6 years time or 1-2 years recession bottoming out in 18 months to 2 years time?
The bottom will be the same - its just the way there will be a lot steeper.

[Saracen]

As has happened many times before, when things get like this, you can;t stop the inevitable. the BoE's job IIRC is simply to control inflation. They should do that. Yes, it will send the country into recession but thats gonig to happen anyway. .....

Actually, no, that isn't the BofE's job. It's more complex than that.

The fundamental policy objective is for high and stable growth and employment. Low inflation, or rather stable pricing, is seen as a precondition to meet that. But low inflation is merely a necessary precondition for meeting long-term fundamental policy objectives, not an objective in it's own right. And the BofE's remit recognises situations where, for example, external factors may affect the economy and where meeting inflation targets would cause undesirable consequences for those policy fundamentals. That's why, if the targets aren't met, or within threshold limits, the Bank have to explain why not, what policy measures are being taken, how long it will take for inflation to return to within target ranges and how it fits with broader policy objectives.

And those broader policy objectives are, in essence, "high and stable growth and employment".

So no, controlling inflation isn't the "simply" the Bank's objective. It's actually just a means to an end, and it's the ends that are really important.

[mnstar]

At least it's not as bad as Zimbabwe.

[Lucio]

Working in distribution as I do, we're really starting to see the hits coming across from the international production companies. For the first time in 20 years, my company's having to print a mid-year price list to pass on the increases because they've been that steep, up to 20% on some products made primarily of brass thanks in part to the copper futures market...


I can only hope that sooner or later the world economy collapses and people can no longer make money by pretending to own something for a while and then selling it on.