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

Generali

Sir_Humphrey wrote: »

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

It looks like rebuilding inventories is going to be the driver for a bounce back in growth, a classic Keynesian way to leave a recession. According to a poster on fool.co.uk, London retail sales were up 12% YoY in December so restocking will be urgently required!!!

I have maintained for quite some time that moving from the current position (base rate = 0.5%, 'printing money', massive fiscal deficit) to a more normal position (base rate = RPI + 2%, not printing money, small fiscal deficit*) is going to be very interesting. We are entering uncharted waters and nobody, not even Golden Sacks' finest or even me(!), knows what is going to happen.




*Spending more than you tax has been the norm for UK Governments since the 1970s. Only the Tories under Thatcher (Lawson boom) and Labour under Blair (3G sale) have made any net repayment AFAIK.

Really2

mitchaa wrote: »

I

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

Glad you do not sit on the BOE decision team.

HAMISH_MCTAVISH

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

I'd love to know the answer as well, particularly as the BoE have already explicitly stated they will be targeting inflation in the medium term and ignoring the expected spikes from higher energy and VAT returning.

Generali

With M4 rising at a sluggish rate and unemployment rising, there is no way this is Keynesian or money supply-related inflation. That only really leaves changes in taxes and import prices.

mitchaa

Really2 wrote: »

Glad you do not sit on the BOE decision team.

I am just bitter that I have a rate of 6% fixed for the next 2yrs, so any rise in interest rate is a bonus to me if it is going to effect the RPI figures.

StevieJ

mitchaa wrote: »

I am just bitter that I have a rate of 6% fixed for the next 2yrs, so any rise in interest rate is a bonus to me if it is going to effect the RPI figures.

But a rise in interest rates should reduce RPI, not quite sure what you mean.

Sir_Humphrey

Really2 wrote: »

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

The fall in Sterling from December 2007 to December 2008 was much larger than December 2008 to December 2009.

VAT and oil will be major factors IMO.

Oil increases may be a result of increased demand from a recovering World economy.

The VAT factor may explain why VAT has not (yet at least) been increased to 20%. This VAT factor will also apply next month. This is why the February inflation figures will be the ones to watch.

I do not expect to the MPC to raise rates for a few months at the earliest. This means that if this turns out not to be blip (or more likely, these factors have masked and exaggerated a rising trend in inflation), then interest rates may rise higher than they otherwise would have to have done.

On the other hand, CPI inflation could subside to 2% in February and interest rate rises be put off.

Generali

mitchaa wrote: »

I am just bitter that I have a rate of 6% fixed for the next 2yrs, so any rise in interest rate is a bonus to me if it is going to effect the RPI figures.

I'm sure Really2 can speak for himself but I'd be surprised TBH old thing.

mitchaa

HAMISH_MCTAVISH wrote: »

I'd love to know the answer as well, particularly as the BoE have already explicitly stated they will be targeting inflation in the medium term and ignoring the expected spikes from higher energy and VAT returning.

Have theyCome on Hamish, you know the score.

Linky, linky, linky;)

Surely got to be up at around 4% come this time next month when VAT is included in the calculations?

chucky

HAMISH_MCTAVISH wrote: »

I'd love to know the answer as well, particularly as the BoE have already explicitly stated they will be targeting inflation in the medium term and ignoring the expected spikes from higher energy and VAT returning.

i can't see it either but you never know.

i don't expect her to get back to me - she's just doing her job in reporting the economic news.