BOE expects "sharp rise" in inflation over coming months

Graham_Devon

Bank of England policymakers voted unanimously to not extend existing money printing efforts, minutes from an MPC meeting showed today.

The notes acknowledged that inflation may rise sharply in coming months, stoking the debate among observers on whether the BoE may be going too far with its measures to boost the economy.

MPC members say the 'sharp rise' would be temporary and 'would have little implication for policy' unless it proved more permanent.

http://www.thisismoney.co.uk/news/article.html?in_article_id=491019&in_page_id=2&in_page_id=2&expand=true

Basically they are saying it could be ok, and if it's ok, it will be ok, but it could be bad and if it's bad, it could be bad.

So it seems inflation is on the cards. Wonder whether they will try and stoke it, or let it run away with itself.

Milarky

Surely any 'temporary' rise (e.g. due to 'one-off' factors affecting the index) must take at least 12 months to work through, so it's only 'temporary' in a technical sense - prices will have gone up and they won't have gone down at the end? (The same being true of 'one off' cuts in mortgage earlier this year rates, which just affected the RPI.)

dopester

The MPC is determined to ensure that a deflationary spiral does not take hold in the UK that would undermine the nascent recovery in the economy.

They all sat back and allowed massive systematic risk to build up. Even if they had oversight or powers stripped from them, with Gordon's confusing tripartite and very light touch product regulation. I will agree that things look a lot more expensive if you lose your job. Print hundreds of billions and it just disappears into the deflationary vortex. Not getting out.

Debt cannot compound faster than income forever - and it's had more than it's run since the end of WW2.. but under Labour's rule especially. The costs or runaway inflation exceed those of deflation. With deflation, bad debts are liquidated and solid credit instruments rise in value.

With desperate and pointless attempts to keep the party going via forced inflation.. nominal interest rates rise, shortening the time horizon by reducing the future value of money to nothing. In an inflationary runoff, real income falls even further than deflation, wiping out all structure of an economy.

If a country can't move because of the weight of debt it's under, some might think it's a good idea to shed some weight (liquidate) rather than add more. So many special interest groups wanting to protect their asset-value wealth and big incomes, at the expense of younger generations, who they'd prefer to take on big debt to keep the party going.

The structural aspect of deflation and depression is also crucial. The ability of the financial system to sustain increasing levels of credit rests upon a vibrant economy. At some point, a rising debt level requires so much energy to sustain - in terms of meeting interest payments, monitoring credit ratings, chasing delinquent borrowers and writing off bad loans - that it slows overall economic performance. A high-debt situation becomes unsustainable when the rate of economic growth falls beneath the prevailing rate of interest on money owed and creditors refuse to underwrite the interest payments with more credit.

When the burden becomes too great for the economy to support and the trend reverses, reductions in lending, spending and production cause debtors to earn less money with which to pay off their debts, so defaults rise. Default and fear of default exacerbate the new trend in psychology, which in turn causes creditors to reduce lending further.

A downward " spiral" begins, feeding on pessimism just as the previous boom fed on optimism. The resulting cascade of debt liquidation is a deflationary crash. Debts are retired by paying them off, " restructuring" or default. In the first case, no value is lost; in the second, some value; in the third, all value. In desperately trying to raise cash to pay off loans, borrowers bring all kinds of assets to market, including stocks, bonds, commodities and real estate, causing their prices to plummet. The process ends only after the supply of credit falls to a level at which it is collateralized acceptably to the surviving creditors.

purch

So it seems inflation is on the cards. Wonder whether they will try and stoke it, or let it run away with itself

You BULLS make me laugh !!!

Always trying to find an angle.

Using the Daily Mail as a source of economic opinion is risable.

Rick62

International stock prices up by between 25 and 30% in the last three months alone, uk property prices up by about 7% over the last 6 months when (on the expected correction trend) they should be down by that much - what do they call that if not inflation?

purch

Instead of relying on an edited version from the Daily Mail, you could always actually read the minutes, which are freely available on the BOE website, and only extend to 10 pages.

Go to page 7, point 24 and you can see the actual minutes in context, rather than picking a sensationalist headline and taking one small sentence totally out of context.

"Nevertheless, it was still the case that, in the near term, CPI inflation was
likely to be extremely volatile. It would probably fall again in September. But thereafter it could rise sharply, reflecting past changes in prices dropping out of the twelve-month comparison, the reversal of the reduction in VAT, and other tax changes.

That sharp rise was likely to be temporary and so would have little implication for policy unless it was accompanied by some news about the medium-term outlook for inflation."

It's not difficult !!!!

alared

It seems that lessons are never learned.
The whole credit crunch crisis was caused by cheap money (too low interest rates).

And this is still the case today.
A really good dose of high inflation is just what the doctor should order to make people realise they are not paying the correct rate on their loans.

System

purch wrote: »

Instead of relying on an edited version from the Daily Mail, you could always actually read the minutes, which are freely available on the BOE website, and only extend to 10 pages.

Go to page 7, point 24 and you can see the actual minutes in context, rather than picking a sensationalist headline and taking one small sentence totally out of context.

"<snip>
It's not difficult !!!!

Hmm well spotted, bit less of a panic then.

chucky

purch wrote: »

Instead of relying on an edited version from the Daily Mail, you could always actually read the minutes, which are freely available on the BOE website, and only extend to 10 pages.

Go to page 7, point 24 and you can see the actual minutes in context, rather than picking a sensationalist headline and taking one small sentence totally out of context.

"Nevertheless, it was still the case that, in the near term, CPI inflation was
likely to be extremely volatile. It would probably fall again in September. But thereafter it could rise sharply, reflecting past changes in prices dropping out of the twelve-month comparison, the reversal of the reduction in VAT, and other tax changes.

That sharp rise was likely to be temporary and so would have little implication for policy unless it was accompanied by some news about the medium-term outlook for inflation."

It's not difficult !!!!

you're right it's not too difficult but then it would give some posters something to less to moan about and blame others for things they don't understand... :T

Thrugelmir

alared wrote: »

It seems that lessons are never learned.
The whole credit crunch crisis was caused by cheap money (too low interest rates).

/QUOTE]

Not cheap. Unregulated lending which created asset bubbles.

nearlynew

Inflation is theft.


Pure and simple.