Inflation not the Problem...Rates may not rise until 2013

purch

Article by Gerald Lyons-Chief Economist @ Standard Chartered

http://business.timesonline.co.uk/tol/business/economics/article6798426.ece

In late September all eyes will be on the world’s leaders as they gather in Pittsburgh for the Group of Twenty (G20) meeting. Their last gathering at the London Summit in April was hailed as the most important economic meeting since the Great Depression. In my view, the forthcoming G20 meeting is as important, for two key reasons.

First, it is vital that the imminent but fragile global recovery is not blown off-course by premature policy tightening.
Second, the global imbalances that contributed to this crisis threaten to be as big an issue in coming years as in the recent past.

Of those gathered in Pittsburgh, it is the US and the UK that face the toughest challenge. For the UK, fiscal policy can be thought of as the good, the bad and the ugly: good, because if people and firms do not spend, the Government has to; bad, because they did not do this from a position of strength, having spent frivolously in boom times instead of running budget surpluses; and ugly, because of the future implication of having lost control of both public sector spending and productivity.

Aggressive spending cuts will be needed, whoever wins the election.

The role of shock absorber thus will fall upon the Bank, with the need to keep monetary policy accommodative.

The US and Europe also need a prolonged period of low rates. It is even possible that Mervyn King, the Bank’s Governor, may not raise rates again before his term expires in 2013.

Really2

All lies we know it is hyper inflation from here on in

Jonbvn

2013!!!!

If this turns out to be true, then it would increase the likelihood of (us) mid-lifers controlling the housing market as per an article in the Times.

Really2

FallenAngel9898 wrote: »

My betting is if growth returns to the levels of seen before the credit crunch we are likely to see $200 per barrel around 2012-13, with all the economic ramifications that go with it.

I don't think oil use will go beyond 2007 usage levels for years possibly never again. The IMF are already saying we may never go back to the consumption levels of before.

I respect your views on oil but I can't see
A) Us getting back to the consumtion levels in that time frame.
Oil being that high unless the speculaters wade in if a shortage is confirmed.
D) We may be less wastefull of it due to constricted spending.
C) If that did happen consumers cut back and force the prices back down again (EG like now)

We will have to wait and see, I agree oil will run out some time but I do not agree that we will be going back to 2007 any time soon.

I don't see why some rightly say we will be paying for this mess for years but then seem to think we will get to hight of boom levels in no time.

Personally I think this could take a decade to shake out, not 3-4 years.

Really2

Jonbvn wrote: »

2013!!!!

If this turns out to be true, then it would increase the likelihood of (us) mid-lifers controlling the housing market as per an article in the Times.

Indeed if we are back to that by then the crash is over for sure. Fast HPI will be a given again.

Cannon_Fodder

purch wrote: »

It is even possible that Mervyn King, the Bank’s Governor, may not raise rates again before his term expires in 2013.

From http://www.bankofengland.co.uk/publications/inflationreport/ir09aug5.xls and the BoE Inflation Report http://www.bankofengland.co.uk/publications/inflationreport/ir09aug.pdf page 43, Chart A;

"Estimate of Mean Expectations" of the Bank Rate.

2009 Q3 0.5
2009 Q4 0.5
2010 Q1 0.7
2010 Q2 1.1
2010 Q3 1.7
2010 Q4 2.2
2011 Q1 2.7
2011 Q2 3.2
2011 Q3 3.6
2011 Q4 3.8
2012 Q1 4.0
2012 Q2 4.2
2012 Q3 4.3
2012 Q4 4.4


These are the rates used in the BoE projections for inflation.

So, either they will follow these mean expectations - within reasonable margins of error - or the projections will be wrong, the policy actions based upon those projections will be wrong, and the outturns will be wrong...turn to page 50...

" Why have outturns over the past year been outside the

distribution?
The extent of the fall in output and the sharp movements in CPI inflation seen over the past year were much greater than the MPC (and indeed most external commentators) anticipated when forming forecasts in early 2008. Consequently, outturns for the past year have tended to fall outside of the fan charts’ 90% probability distribution."

Doesn't exactly instill great confidence, does it?

HAMISH_MCTAVISH

Really2 wrote: »

Indeed if we are back to that by then the crash is over for sure. Fast HPI will be a given again.

Fast HPI is a given as long as only the top earning 40% of people have to be able to afford houses.

250,000 new households a year, and only 100,000 new houses = strong HPI.

The equity rich middle agers using low rates for the next few years to take advantage of a once in a lifetime opportunity and expand into BTL is just a bonus....;)

Really2

Cannon_Fodder wrote: »

From http://www.bankofengland.co.uk/publications/inflationreport/ir09aug5.xls and the BoE Inflation Report http://www.bankofengland.co.uk/publications/inflationreport/ir09aug.pdf page 43, Chart A;

"
These are the rates used in the BoE projections for inflation.

I think they said on the last rates decision that that they think they are wrong and will undershoot target inflation until 2011/2012

Third, interest rates are likely to remain lower for longer than the markets expect. Even assuming Bank Rate at 0.5 percent until the end of 2011, the bank expects inflation to undershoot the target rate until the final quarter of 2011.