inflation

panic_2

as inflation has now reported to have risen to 5.2% does this mean that the BoE may need to raise the base rate?

lectureral

No - the base rate is headed in the opposite direction - the thinking is that the current recession will deal with inflation. We have already seen the price of commodities (fuel, food etc) fall and this will feed into the inflation rate over time.

Oblivion

panic wrote: »

as inflation has now reported to have risen to 5.2% does this mean that the BoE may need to raise the base rate?

I wish they would. Unfortunately for savers, they've only just put it down by 0.5% and seem to be under pressure from commerce to put it down even further to boost manufacturing and house sales. Inflation seems to have taken a knock in their list of priorities.

I think the 0.5% reduction was ill-judged. The economy needs to feel a bit more pain, companies and banks need to be allowed to fail, otherwise lessons will never be learnt. I've already heard some financial 'experts' on TV calling for the rapid re-introduction of 100% mortgages. Absolute madness.

Dave.

bonsoirbonsoir

as inflation has now reported to have risen to 5.2% does this mean that the BoE may need to raise the base rate?

Not necessarily, especially as a higher level of inflation was expected.

The measure of inflation the Bank of England report is a measure of past inflation, and we have strong signals that that is about to fall. Oil prices have fallen from $140 per barrel to $80 per barrel, plus the economy is definitely in recession which reduces demand. Inflation is partly caused when demand exceeds supply, causing rising prices, hence the negative effect on inflation that a recession will cause.

Actually, a worry that the Bank of England will soon have is of deflation. This is when demand drops below the capacity to supply, causing unemployment, and this is a problem Japan has had for a few years, this is why the Bank of England set inflation target of 2% rather than 0%.

So my guess is that the base rate will either stay where it is, or even be lowered further, at least in the short term.

David

Milarky

National Statistics inflation nugget (found it)

CPI +0.5% @ 5.2% to September
RPI +0.2% @ 5.0% to September
RPIX + 0.3% @ 5.5% to September

The main reason for RPI (used from wage negotiations and annual benefit unprating) falling behind the others it indices is that it is currently being flattered because:

"there was a large downward contribution from housing with the main effect coming from house depreciation partially offset by buildings insurance"

Blow me over, but I never recall all that house appreaciation over 8 or 10 years coming up as a reason why the RPI was so low all those years?

Next month's figures out on 18 November (5 weeks today)

pumpndump

What really annoys me is the way the BBC - an arm of [cue menacing music] the government - keeps trying to reassure us every time that inflation is up. "Ooh, don't worry, it's going to go down again soon." This morning, on Radio 5 Dead, they wheeled out an "expert" who told us that inflation was shortly going down. IF the price of energy goes down. IF the oil prices stay low like they are now. IF food prices go down. IF there's a lessening of orders for raw material from China. IF the US economy gets better. IF the banks start lending to each other again.

And IF you have enough IFs, you can get London into a bottle.

The_Dangerman

pumpndump wrote: »

What really annoys me is the way the BBC - an arm of [cue menacing music] the government - keeps trying to reassure us every time that inflation is up. "Ooh, don't worry, it's going to go down again soon." This morning, on Radio 5 Dead, they wheeled out an "expert" who told us that inflation was shortly going down. IF the price of energy goes down. IF the oil prices stay low like they are now. IF food prices go down. IF there's a lessening of orders for raw material from China. IF the US economy gets better. IF the banks start lending to each other again.

And IF you have enough IFs, you can get London into a bottle.

I don't think there is anything sinister in that, all the indicators are showing that inflation is highly likely to fall away. The 3 options of inflation going up, staying the same or going down are, at this moment in time, not all equally likely. The recession will mean commodity prices will rapidly fall away.

bonsoirbonsoir

The_Dangerman wrote: »

I don't think there is anything sinister in that, all the indicators are showing that inflation is highly likely to fall away. The 3 options of inflation going up, staying the same or going down are, at this moment in time, not all equally likely. The recession will mean commodity prices will rapidly fall away.

Yup, the fact of the matter is that we have just arrived at a global recession. Very few economists disagree with this, and the lessening of demand is likely to lead to falling prices.

What I want to know is, when did 'unemployment' become 'joblessness'? This is the term I heard a UK economist use today - is it a positive way of saying something negative?

saxmund

Milarky, when house inflation was high, interest rates were low - which probably kept mortgage repayments fairly stable (although for most of that period RPI was higher than CPI). Don't forget that house inflation also only affects the mortgage payments for people who move house; for others the mortgage payment only depends on the interest rate they're paying.

saxmund

bonsoir2, no it's just a synonym, like the difference between abattoir and slaughterhouse. "Jobless" is a more vernacular way of saying "unemployed".

wombat42_2

The_Dangerman wrote: »

I don't think there is anything sinister in that, all the indicators are showing that inflation is highly likely to fall away. The 3 options of inflation going up, staying the same or going down are, at this moment in time, not all equally likely. The recession will mean commodity prices will rapidly fall away.

Sure commodities are likely to be subdued for a year or two. But there could be a bad crop harvest next year - who knows. Commodities are very volatile. In the long term, inflation could be back with a vengence.