Inflation

dodger1

Mervyn King said today that inflation would rise sharply over the coming months. Would it therefore be correct in holding off saving in long term bonds for a while in case savings rates increase?

opinions4u

I'd suggest the potential impact of inflation and possible rising interest rates is already priced in to fixed rates savings accounts.

Myrmidon_J

dodger1 wrote:

Mervyn King said today that inflation would rise sharply over the coming months. Would it therefore be correct in holding off saving in long term bonds for a while in case savings rates increase?

I think savings rates are more closely correlated with interest rates than inflation. Of course, interest rates and inflation are also correlated - but Mervin King has also indicated that the base rate is likely to remain low for an extended period.

Also, as opinions4u says, markets will already have priced in possible increases.

Miss.Moneypenny_3

Perhaps NS&I index linked bonds are the way to go if inflation is about to take off.

Hungerdunger

dodger1 wrote: »

Mervyn King said today that inflation would rise sharply over the coming months.

Sharply is a relative term. Here's what the Torygraph says:

The Bank also expects inflation to rise above its 2pc target in the next few months before heading back down to 1.6pc within two years.

If you have too much time on your hands, you can read the full 55 page report here.

ses6jwg

I have put £1,000 into an M&G index linked gilt, just as a bit of a counter should inflation rise.

took it out a month or so ago, currently 0.9% down

zygurat789

Quantitative easing is printing money billions of it. too much money chasing too few goods (as at the end of a recession) = inflation inflation inflation. Crude oil prices have risen 79% this year = inflation
The only brake will be the consumers unwillingness to spend!!! Some hope.
We could end up as in the 70s & 80s with inflation in double figures and mortgage interest rates likewise.
Whatch this space.

neil324

Ha ha, basiclly he was saying he expects inflation to rise sharply over the near term but magiclly fall back, so in other words do NOTHING about it. Don't expect rates to to rise unless there is a full blown Sterling/Gilts crisis.

Myrmidon_J

zygurat789 wrote:

Crude oil prices have risen 79% this year = inflation

That's a very simplistic view.

Oil prices bombed last year, yet this did not immediately translate to hyper-deflation (or whatever it's called). The price of oil is just one factor.

I think deflation (or, at the very least, disinflation) is a greater threat and I think more deflationary pressures exist in the economy than inflationary pressures.

Such as: extremely high unemployment (now), structurally high unemployment (future), lack of credit, lack of liquidity, high levels of personal debt, high levels of government debt, etc.

zygurat789

Myrmidon_J wrote: »

That's a very simplistic view.

Oil prices bombed last year, yet this did not immediately translate to hyper-deflation (or whatever it's called). The price of oil is just one factor.

I think deflation (or, at the very least, disinflation) is a greater threat and I think more deflationary pressures exist in the economy than inflationary pressures.

Such as: extremely high unemployment (now), structurally high unemployment (future), lack of credit, lack of liquidity, high levels of personal debt, high levels of government debt, etc.

BUT since then we have had quantative easing whereby the worlds governments have printed billions of currency just to avoid these scenarios. Do you really think they won't have any effect?

sabretoothtigger

The situation is spring loaded imo

As soon as they stop buying their own debt the real market will start to adjust towards higher rates.

Bonds previously sold will be less attractive and will be sold by current holders and beneficiaries of the QE money which means the greater money supply is released and so inflation which means market demands higher rates and more selling till rates can compensate for the loose money and/or they reverse the QE process however thats done if at all possible with a still weakened economy that probably didnt benefit at all from buying crappy government debt in the first place

Thats my ghettonomics take of what'll happen, I think its a slippery slope we stand on top of