Deflation? For whom?

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StevieJ wrote: »

My council tax has not increased :T

I have to thank you Steve, you brighten up our day sometimes.

poppy10_2

Wookster wrote: »

Where is Mervyn's open letter to the Chancellor explaining why its preferred target (the CPI) is still over 100 bips above its desired range?

It's here:
http://www.bankofengland.co.uk/monetarypolicy/pdf/cpiletter090324.pdf

Since last summer, world commodity prices have fallen sharply and that has helped drive a fall in
overall CPI inflation from 5.2% in September to 3.2% in February. But the effect on UK consumer
prices of decreases in world prices has been dampened by the depreciation of sterling. The sterling
effective exchange rate has depreciated by 28% since the summer of 2007.

Despite the increase in CPI inflation in February, we believe that the sharp decline in CPI inflation
since its peak in September is likely to resume in the coming months. This reflects two main
factors.
First, a number of major gas and electricity suppliers have signalled a reduction in tariffs in
response to earlier falls in global energy prices. On its own, we expect that this will act to reduce
inflation in the coming months by around a percentage point.
Second, the growth rates of money and nominal demand have slowed sharply.

As a result of these factors, and notwithstanding the inflation outturn for February, it is likely that
over the next year CPI inflation will move below target.

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kennyboy66 wrote: »

£780 a month for a mortgage ?

Is that a big mortgage ?

Maybe not where you live Kenny, but I would suggest £780 is quite a large sum. It just shows how far things have skewed in the house price bubble when we think that this amount isn't large.

In Dec '96 I was paying £260 a month on a 90% LTV mortgage, for a nice 2 bed semi, with a drive, garage and front and back garden, in a nice semi rural area. My interest rate was 7% at the time.

kennyboy66_2

StevieJ wrote: »

I think the pensioners are due/received a pay rise of 5% (based on RPI Sept) not a bad half of a double whammy

Or that 50% of pensioners have less than £6k in savings.

beecher

http://www.statistics.gov.uk/cci/nugget.asp?id=19

From the ONS

Consumer Prices Index (CPI) annual inflation – the Government's target measure – was 3.2 per cent in February, up from 3.0 per cent in January.
The largest upward pressure on the CPI annual rate came from food and non-alcoholic beverages. The effect was widespread but the largest individual factor was the price of vegetables which rose by more than a year ago. There were smaller upward pressures from fruit, mineral waters, soft drinks and juices, bread and cereals, and meat, partially offset by coffee, tea and cocoa where prices fell this year but rose a year ago.
There were further large upward pressures from:
• recreation and culture where, overall, prices rose by more than a year ago. The effect came mainly from a wide range of games, toys and hobbies and from computer games and preschool activity toys in particular.
• transport costs, mainly due to the price of fuels and lubricants which rose by more than a year ago. The average price of petrol rose by 3.2 pence per litre between January and February this year, to stand at 89.5 pence, compared with a rise of 0.1 pence last year. Diesel prices rose by 2.1 pence per litre this year compared with a rise of 0.5 pence last year. Within this division, there was a partially offsetting downward effect from air fares, principally from European and long-haul routes.
• furniture, household equipment and maintenance with upward effects from major appliances and non-durable household goods.
• clothing and footwear where prices rose by more than a year ago.
The only large downward pressure on the CPI annual rate came from housing and household services. This was due to gas and electricity bills which were unchanged this year but rose a year ago when many suppliers increased their rates.
Retail Prices Index (RPI) inflation slowed to 0.0 per cent in February, down from 0.1 per cent in January. The main factors affecting the CPI also affected the RPI. Additionally, there was a large downward pressure from housing with the main effect coming from mortgage interest payments which are excluded from the CPI.
RPIX inflation – the all items RPI excluding mortgage interest payments – was 2.5 per cent in February, up from 2.4 per cent in January.
As an internationally comparable measure of inflation, the CPI shows that the UK inflation rate in January, at 3.0 per cent, was above the provisional figure for the European Union as a whole of 1.7 per cent.

carolt

kennyboy66 wrote: »

£780 a month for a mortgage ?

Is that a big mortgage ?

Thats less than I am paying on a 4 bed semi bought in 1999.
I would struggle to rent a 3 bed terrace for anywhere near that.

Per the Telegraph table, that mortgage has fallen by £125 / month, which implies a paid interest rate changing from about 6% - 4.5%

So it would seen, that it's neither a "big mortage" nor a tracker paying 2%.

People with mortgages on fixed interest rates (40-50% of mortgage holders, IIRC) are not seeing any decreases in their monthly payments; people renting may be seeing some falls, but usually they'd have to move - with all the associated hassles - to see anything like a drop of £125/month.

Given how many people are on fixed rates, or rent, or have no mortgage at all, then if the average saving is £125/month, then clearly some people are getting enormous handouts from the taxpayer, via interest rates, in reductions in their monthly mortgage costs. So presumably the average mortgage here is for a big amount; the fact that they are only paying £780/month (your figures) reflects the historically low interest rates, rather than the moderate size of their mortgage.

apt

As well as getting 5% increase in the state pension this year there's also a minimum annual increase of 2.5% in state pensions. So pensioners are also likely to get a higher % rise than most of the workforce next year as well.

skap7309

ad9898 wrote: »

I said it yesterday, deflation is a myth at this time, mortgage IR's have been cut by the BoE and Clown has cut VAT, lo and behold we have 'manufactured deflation' so the government then gives the green light to the BoE ot 'print'.

Essentials, such as food, council tax, etc.. are all going up. Yet pay freezes and pay cuts are on the agenda. Put it this way, I pretty much gaurantee most of us will feel a lot poorer at the end of the year than we do now. The government are also now using RPI, which was never used when it didn't represent low IR's, CPI is still over the government target of 2%, and I think it will stay there TBH

ad9898, once again you speak my mind - and word it better! This deflation talk is rubbish, everything around me IS going up in price. Just look at the CPI to see it is still 1.2% above government targets - and rising.

beecher

Thought this part of Mervyn's letter was interesting

At its next policy meeting the MPC will want to consider further the extent to which the balance of
risks has changed in light of the latest inflation figure and all the other relevant data. In particular,
in the context of the CPI data this month, the Committee will need to judge to what extent the main
upside risk to the inflation outlook identified in the February Inflation Report - that there is greater
pass-through of the exchange rate depreciation to inflation - is crystallising, or whether the inflation
outturn reflects other factors.

I have always thought interest rates would start to climb by the end of the year, and this certainly seems to support those who think inflation is a far bigger risk than deflation.

Those on tracker mortgages who are spending the money they're saving might well rue the day once their payments go through the roof.

StevieJ

ad9898 wrote: »

Maybe not where you live Kenny, but I would suggest £780 is quite a large sum. It just shows how far things have skewed in the house price bubble when we think that this amount isn't large.

In Dec '96 I was paying £260 a month on a 90% LTV mortgage, for a nice 2 bed semi, with a drive, garage and front and back garden, in a nice semi rural area. My interest rate was 7% at the time.

1988/89 I was paying £440 a month for a bog standard first time buyer home:cool: Hope this contributes to the debate