MSE News: Record inflation hike: could interest rates soon rise?

Milarky

They are certainly keen to make the point that this is a 'one off'. I thought this amusing:

In the year to December 2009, RPI annual inflation was 2.4 per cent, up from 0.3 per cent in November. The last time there was an increase in the 12-month rate greater than 2.1 per cent between two months was in June and July 1979 [when VAT doubled, I think] when the rate increased from 11.4 per cent to 15.6 per cent.

Sounds like they are having a little dig at the Tories from inside the citadel...

mr_fishbulb

ILW wrote: »

I believe CPI does not include mortgage interest, or is that RPI? Correct me if I am wrong.

Correct. CPI does not include mortgage interest payments. It was used a lot in the news as the figure of inflation before the house price drop.

RPI does include mortgage interest and has been used in the news since interest rates dropped.

Make of that what you will.

Really2

obsessed_saver wrote: »

Mmm. What were they expecting by pumping money into the economy? Their answer to debt, is more debt.

It is all down Vat changes and pre QE currency drops and oil increases.
Can't see any of this inflation being QE related.

StevieJ

mitchaa wrote: »

Silly question....

If inflation is increasing and the BOE whacks up interest rates, isn't this going to put inflation up even more as mortgage costs for millions increase?

In theory it should strengthen Sterling and reduce the cost of imports and thus reduce RPI.

mitchaa

It would be beneficial for those that are on fixed rate mortgages for the BOE to raise interest rates significantly seeing as the majority of pay awards are based around the RPI figures.

3%+ by the end of the year no probs.

Get them up

Sir_Humphrey

Generali wrote: »

It may not be inflation however but a one-off jump in prices caused by the devaluation of the pound. Inflation is a persistant tendancy for prices to rise, not a one-off change.

I go to the Eurozone and also Switzerland a lot, and the pound had already done most of its depreciation by last December. Even allowing for lag (which would also smooth out the effect of a sudden devaluation) I doubt this is the key to it.

I agree that inflation is not a one-off jump in prices, and I suspect the VAT etc explain the huge size of the rise (shame we could not compare this to the last VAT changes in the 1980s and 1990s). It could well fall back in February. If not, then things get interesting on the policy front.

Generali wrote: »

Given that UK GDP fell by over 5% and unemployment is well over 2,000,000 it's pretty unlikely that supply of labour or goods constraints is causing this rise in the CPI.

I agree on the labour front, although shops have been deliberately keeping lower inventories (I found the January sales pretty lousy this year).

Milarky

peterg1965 wrote: »

At least we have avoided stagflation! That is some upturn over the last few months.

That pretty much is 'stagflation' - you're looking at the 'inflation' graph not the flat lining one for growth!

chucky

MSE_Natasha wrote: »

This is the discussion thread for the following MSE News Story:

"The one percentage point increase raises the possibility of the Base Rate rising earlier than expected ..."

Read the full story:
Record inflation hike: could interest rates soon rise?

These threads have been merged to avoid duplication. Thanks to HammerSmashedFace for the original post.

Hi Natahsa,
Could you explain why one months inflation rise would need Interest Rates to rise?
Hope that you get back to me.
All the best.
Chuckster

mitchaa

chucky wrote: »

Hi Natahsa,
Could you explain why one months inflation rise would need Interest Rates to rise?
Hope that you get back to me.
All the best.
Chuckster

Guaranteed to be 2 months next month Chucky, surely another significant rise to be expected?

Gone are the days of your £50pm mortgage payments:p;)

ses6jwg

Glad I put some money into index linked gilts.

I bet those who took out 5 year fixes on their savings won't be feeling too smug soon...