Views on inflation (The Independent)

Wookster

Jeremy Warner: The inflationary parrot is not yet deceased

Having been declared dead, it appears that the parrot still lives. I'm talking about inflation, which to the surprise of most forecasters actually rose last month as measured by the Consumer Prices Index. To believe the headlines, you would think we were already in an age of deflation, yet the latest numbers have bizarrely forced the Governor of the Bank of England again to write to the Chancellor explaining why inflation is still so much above target. Wait a while, he might have said, and I'll be writing to you to explain why we are so far below target.

Still, we are not at that point yet. There is obviously a lot more inflation left in the system than everyone thought. The Governor always used to get irritated by the use of the term "stagflation", which described relatively high inflation in combination with sluggish growth. The world looked nothing like that, he would insist. Perhaps a new word should be added to the lexicon to describe the present combination of circumstances – persistent inflation together with outright economic contraction. How about "conflation", the dictionary definition of which is conveniently the coming together of two things?

http://www.independent.co.uk/news/business/comment/jeremy-warner/jeremy-warner-the-inflationary-parrot-is-not-yet-deceased-1653463.html

Hamish McRae: The madness of our inflation indices

A world of falling but uncertain prices is a world unconducive to growth

So inflation falls to zero, the lowest since 1960. Meanwhile, the Governor of the Bank of England has to write a letter to the Chancellor explaining why inflation is too high. Um. Something not quite right here. What is not right is that both of the two main measures of inflation, the retail price index and the consumer price index, are flawed. The RPI (which says inflation is zero) has the great advantage of being continually calculated back to 1947. It is trusted, it is independently calculated and it cannot be massaged by the government of the day. It is also the basis for calculating state and all index-linked pensions, welfare benefits and the return on index-linked government debt. So it is hugely important.

It does, however, have one grave flaw. Its calculation of housing costs takes into account the interest on mortgages. That has the advantage of reflecting the monthly cost of living for people with mortgages, but it leads to exaggerated swings in the index such as we are seeing now. Any inflation index that goes from 5 per cent to zero in six months, as the RPI, is going to mislead.

The alternative CPI (which says inflation is 3.2 per cent) has the advantage that it is harmonised with the indices of other EU members – it used to be called the harmonised index – and it is more stable. It is used by the Bank of England as the rate to target, with the range set at 1 percentage point above or below a central point of 2 per cent. Because it is now above 3 per cent the Bank has to say sorry and explain what it is doing about it.

http://www.independent.co.uk/opinion/commentators/hamish-mcrae/hamish-mcrae-the-madness-of-our-inflation-indices-1653324.html

Some interesting views here - both articles are definitely worth a read.

ad9898_3

Good article, there is another one in The Independent, suggesting that CPI would be at 4.6% if the government hadn't cut VAT.

The collapse in the value of the pound and a surprising rise in food prices has left inflation stubbornly high, says the Office for National Statistics. The Consumer Prices Index, or CPI, rose last month to an annual rate of 3.2 per cent, from 3 per cent in January.
Indeed, had the Chancellor, Alistair Darling, not cut VAT from 17.5 per cent to 15 per cent in his pre-Budget report last November, the rate would today be standing at an uncomfortably high 4.6 per cent, some way beyond the Bank of England's target of 2 per cent. The higher than expected figure meant that the Governor of the Bank, Mervyn King, had to write his fifth mandatory letter of explanation to the Chancellor.

http://www.independent.co.uk/opinion/commentators/sean-ogrady-millions-are-caught-in-the-new-inflation-trap-1653410.html

Arcaine

The rise in food prices especially meat was not a surprise to me. Since the fall of the pound Europe has been importing a lot of british meat, my Mum who is a tenant farmer has seen prices go up for the meat she produces for the first time in a long time give the demands made by supermarkets for prices to be lowered over the past 10 years. I think, overall, there will still be lowering inflation figures in months to come, credit, demand, jobs and house prices are all still under a lot of downward pressure. Also the Pound seems to have found a more stable level against the $ and Euro at the moment.

Wookster

ad9898 wrote: »

Good article, there is another one in The Independent, suggesting that CPI would be at 4.6% if the government hadn't cut VAT.

I didn't see that! Maybe that was the motivation behind the VAT cut - keep the CPI low to make it easier to justify warming up the printing presses.

vivatifosi

It's a shame nobody mentions RPIX anymore (RPI minus mortgage interest payments). It is currently reported at at 2.5%, up from 2.4% in January.

purch

"conflation",

I like that. :T

The most worrying thing is that despite the most severe Deflationary pressures seen in generations, Inflation cannot/will not be eradicated from our economy, and it will probably be the same all over the World.

We are clearly enetering into new territory economic theory wise, and a new way of describing the landscape is required..............Conflation it is then :T

ad9898_3

vivatifosi wrote: »

It's a shame nobody mentions RPIX anymore (RPI minus mortgage interest payments). It is currently reported at at 2.5%, up from 2.4% in January.

The government only use the figures that fit in with their policies, last year it was CPI, this year RPI, who knows, next year we might see RPIX, but of course we have to remember that only the measure that helps the over indebted at the expense of prudent savers will be used.

I would bet a years salary that if house prices suddenly started to go up, we would be back to concentrating on CPI again.:rolleyes:

Wookster

ad9898 wrote: »

I would bet a years salary that if house prices suddenly started go up, we would be back to concentrating on CPI again.:rolleyes:

This is the mad thing about current policy - it seems to be designed to re-inflate house prices no matter the cost.

Its stark raving mad! Crash has lost his marbles!

ad9898_3

Wookster wrote: »

This is the mad thing about current policy - it seems to be designed to re-inflate house prices no matter the cost.

Its stark raving mad! Crash has lost his marbles!

Indeed, it's all about house prices, the rest of the economy plays a very distant second fiddle, I remember this sickening TV interview with Fern Britton, where he was openly advocating shared ownership, see it here...

http://www.youtube.com/watch?v=DTrMB5_YGrQ

He is definately starting to resemble Hitler in the last days of the 3rd Reich, more and more desperate, doing more and more damage.