Deflation Revisited

jim83

All I'm doing is exponentially extending the current trendline - that's it. I'm using the actual numbers from official sources. I'm not making stuff up.

In order for the CPI to follow the BOE projection, we would need to significantly reverse the current trend within the next 5 months, otherwise it'll be much higher than predicted next year.

I don't think we are heading into a boom, in fact I am a lot more bearish than most on here. The numbers simply do not show asset price deflation occurring in the UK in the near term. They show the opposite.

Generali

jim83 wrote: »

Generali,

Of course, if we analyse the period of massive deleveraging and retail panic at the end of last year it will produce a downtrend and this is almost my point. That anomaly has affected our yoy CPI for the past 8 months, but come january that event will not affect the numbers at all.

CPI is used as a measure to find how quickly prices are currently rising. Prices are currently rising at a rate of at least 4%/yr and have been for the past 7 months. CPI including what happened last year is not an accurate measure of reality today and is likely not to be an accurate measure of the immediate future as well.

All I'm doing is using the previous 8 data points to form a trend, rather than the usual 13. Obviously the more congruent points the stronger the trend, but I don't think it's particularly disingenuous.

I don't think you were being disingenuous either, I just felt it was worth making the point that when using volitile data and taking out 2 individual points then the ones that are chosen can make a pretty dramatic difference to the outcome so care is needed when moving from a position of I have taken these datum points from a set of data and ended with a particular extrapolation and I have taken a set of data and ended up with a possible outcome.

I hope my posting doesn't come across as aggressive BTW. Sometimes I've been told it has but I don't mean it to.

baby_boomer

jim83 wrote: »

According to official CPI numbers, prices have risen 2.5% between January and August - an annualised rate of 4.3%.

Although a couple of weeks ago the Telegraph's inflation index was down 7%.

Our own household outgoings are significantly down on last year (around 10%) - although I haven't yet worked out to what extent this is due to falling prices or us getting our act together.

A future inflationary pressure is that VAT is due to go up 2.5% from January - and may well have to go up another 2.5% after the election to meet our fiscal shortfall.

However this may just cause shops to cut their margins in order to avoid another squeeze on sales.

We may officially come out of recession in time for the next election, - but don't assume that the future path is ever upward.

In spite of this inflation still worries me. It's a way for government to clear its own debts and those of the banks that it is supporting .

jim83

baby_boomer wrote: »

Although a couple of weeks ago the Telegraph's inflation index was down 7%.

this?

This is akin to RPI in that it includes mortgage payments and is exposed to the same fundamental flaw that causes every other index to be understating the rate at which prices are rising - it's measuring against pre-crash prices.

Delving further into the data they provide, the negative number is due to massive drops in three areas: Mortgage payments (interest rates cannot go much lower so this cannot continue decreasing); petrol (oil has pretty much doubled since the start of the year) and internet costs (fair enough).

It's highly likely that this index will be showing very positive numbers as well by Jan/Feb.


Please don't be under the impression that I am at all bullish about our economic prospects, though. If the Dec-Feb spike up in price indices I am calculating actually occurs, it will cause chaos.

Thrugelmir

baby_boomer wrote: »

Although a couple of weeks ago the Telegraph's inflation index was down 7%.

Our own household outgoings are significantly down on last year (around 10%) - although I haven't yet worked out to what extent this is due to falling prices or us getting our act together.

A future inflationary pressure is that VAT is due to go up 2.5% from January - and may well have to go up another 2.5% after the election to meet our fiscal shortfall.

However this may just cause shops to cut their margins in order to avoid another squeeze on sales.

We may officially come out of recession in time for the next election, - but don't assume that the future path is ever upward.

In spite of this inflation still worries me. It's a way for government to clear its own debts and those of the banks that it is supporting .

A few quick thoughts.

Won't the increase in VAT merely reduce discretionary spending?

Shops will close, as there is a level at which a business becomes either unprofitable or the level of profitability means the capital investment is better directed elsewhere. The remaining shops will survive on reduced sales.

With inflation. The UK Government will need to borrow more to service its debt requirements. Thereby incurring higher interest charges. We are in a position where expenditure in real terms has to be cut. Borrowing cannot grow as where is the money going to be borrowed from.

The UK economy needs a major rebalancing. I'm not socialist. But a redistribution of wealth seems to be necessary in the longer term.

dopester

Thrugelmir wrote: »

But a redistribution of wealth seems to be necessary in the longer term.

Geoffk has a lot of wealth which could be redistributed. He surely doesn't need all that money slushing about. The awful hoarder.

Sir Humphrey needs to have new memories of holidays in the South of France and drinking fine wines, and why should he be denied when Geoffk has so much wealth to tap? Geoffks own fault for saving, wisely investing and not spending recklessly.

And slap a HPI windfall redistribution tax on everyone who owns their homes outright, including Max.

chucky

Thrugelmir wrote: »

Won't the increase in VAT merely reduce discretionary spending?

Shops will close, as there is a level at which a business becomes either unprofitable or the level of profitability means the capital investment is better directed elsewhere. The remaining shops will survive on reduced sales.

don't you think that something less drastic may happen? :rolleyes:

not all shops will have to close and will probably have reduced turnover and probably less profit and some may even make a loss IF your doomsday prediction happens...

Thrugelmir

chucky wrote: »

don't you think that something less drastic may happen? :rolleyes:

not all shops will have to close and will probably have reduced turnover and probably less profit and some may even make a loss IF your doomsday prediction happens...

Doomsday ?

MFI, Woolworths, Adams, Officers Club, Zavvi, Borders, Blockbuster, Pier One, Van Heusen, Payless Shoes, Foot Locker, Land of Leather (33 stores) plus hundreds of independents.

How many more examples would you like.?

Meanwhile the major supermarkets drive relentlessly forward. Is that the "less drastic" you were refering too?


An article in yesterdays Times highlights additional pressures on business in general.

Companies are facing rises of up to 25 per cent in business rates after a revaluation of commercial properties rewarded small businesses at the expense of large retailers. Supermarkets are likely to face an average 12 per cent rise in business rate bills, said the British Retail Consortium (BRC).
Businesses in London will be particularly heavily burdened by the new rates regime, which will start next year, as they are based on commercial rents in April 2008, when the property rental market was near its peak. They will also be subject to a Crossrail levy of an extra 2 per cent if the property they rent has a rateable value of £50,000 or more in the new valuations.
A typical large West End hotel pays about £900,000 in business rates annually at the moment, while a medium-sized office off the Marylebone Road pays about £14,000. The Government has capped the amount that rates can rise on a large building between 2010 and 2014 to 25 per cent, while tenants of small buildings could see rates rise by 15 per cent in the same period.

http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article6857589.ece

chucky

Thrugelmir wrote: »

An article in yesterdays Times highlights additional pressures on business in general.

this is what happens during a recession - a business that was struggling before the recession will find it even more difficult when there are economic issues. all of the ones that you mentioned were in troubled times before the recession.

did you expect all shops to open more stores during this economic climate.

mewbie_2

Thrugelmir wrote: »

Won't the increase in VAT merely reduce discretionary spending?

A large amount of VAT is on non discretionary. Everyone thinks - oh I won't buy a CD or whatever !!!!!! from Tescos, but VAT is charged on gas bills, fuel, etc.

There is surely a limit, given the amount of taxation heading our way, where discretionary spending cuts give way to real cuts - turn down the heating, eat less, drive less, etc.