RPI 4.4%; CPI 3.4%; BoE In Denial

StevieJ

Wookster wrote: »

Probably ran out of toys to throw out of the cot :rotfl:

And people still doubt

Charterhouse

ManAtHome wrote: »

HUH - of course the BoE can "cover" Gilt sales - they're about the only bleeders buying! I doubt that Thrugelmir claimed otherwise - maybe a linky? (any references to open-market Gilt auction failures will be disqualified).

House prices/unemployment probably not connected at all with govt borrowing and spending 30% more than they're "earning"..? (what could possibly go wrong...)

Err, QE ended quite some time ago, but you go to it mr Keyboard warrior.

Inflation is not an issue for the BoE particularly because the inflation that we are seeing is cost-push inflation rather than demand-pull inflation. In other words the costs of inputs are being pushed up by the depreciation of sterling and by the increase in commodity prices. Neither of those two things concern the MPC especially, because they aren't elements of inflation that will be significantly effected by higher interest rates. Wage inflation right is what matters and there isn't much of it about.

StevieJ

Charterhouse wrote: »

Err, QE ended quite some time ago, but you go to it mr Keyboard warrior.

Inflation is not an issue for the BoE particularly because the inflation that we are seeing is cost-push inflation rather than demand-pull inflation. In other words the costs of inputs are being pushed up by the depreciation of sterling and by the increase in commodity prices. Neither of those two things concern the MPC especially, because they aren't elements of inflation that will be significantly effected by higher interest rates. Wage inflation right is what matters and there isn't much of it about.

But higher interest rates will cause Sterling to appreciate thus reversing a major part of the cost plus inflation, agree longer term it is wages that matter.

Really2

StevieJ wrote: »

But higher interest rates will cause Sterling to appreciate thus reversing a major part of the cost plus inflation, agree longer term it is wages that matter.

True but oil is 70% a barrel more than this time last year in $ alone.

You still could not wipe out that inflation by raising interest rates. (I make that about $2.5 - £1 to get oil costing the UK the same)

Also raising rates at the wrong time could make the currency weaker if investors think it is detrimental to the economy and could cause serious damage and greater risk of defaulting on government debt.

StevieJ

Really2 wrote: »

True but oil is 70% a barrel more than this time last year in $ alone.

You still could not wipe out that inflation by raising interest rates. (I make that about $2.5 - £1 to get that to oil costing the UK the same)

Also raising rates at the wrong time could make the currency weaker if investors think it is detrimental to the economy and could cause serious damage and greater risk of defaulting on government debt.

But not so long before it was $150 a barrel rather than the $49 a year ago, so if we had a higher base rate we would have seen negative inflation in oil since Aug 2008. The main point is these things are temporary or one offs but wage inflation tends to be permanent.

Really2

StevieJ wrote: »

But not so long before it was $150 a barrel rather than the $49 a year ago.

True and inflation lowered even though the £ was weaker and IR rates were just as low.;)

Inflation is YOY so in reality a lot of the inflation we are seeing is because oil went so low.

No amount of changing rates will cause much effect on that as every country is seeing oil prices increase thus increasing inflation.

But come June the oil lows will be out of the system and I think that is around when BOE think inflation will start to fall again.

missed the edit

so if we had a higher base rate we would have seen negative inflation in oil since Aug 2008

We did anyway with a low base rate as it went negative YOY.

I agree with you it is only a tempory measure but it is also one that only can have limited effect.
Also agree it is money in people pocket that causes high longterm inflation not input costs.

StevieJ

Really2 wrote: »

Also agree it is money in people pocket that causes high longterm inflation not input costs.

It is not just the money in peoples pockets (demand) it is the fact that once there it is rarely removed (cost push), although for the first time in my lifetime we have seen an element of wage reduction of late.

cogito

kennyboy66 wrote: »

The question really is, does it really matter ?

The UK was once the biggest exporter of wool and then a couple of hundred years later was the biggest exporter of cotton textiles. At one stage cotton textiles accounted for 50% of all UK home produced exports (19th Century) - and it still accounted for significant exports until the 1960's/70's.
This is part of the reason we have large asian communities in the former mill towns.

There is a bit of fetishism about "making stuff", usually big heavy stuff that only real men can make.

I doubt if we will be getting the call when Sydney wants a new bridge.

The Asians didn't actually start arriving in significant numbers until the 1950s by which time the textile industries were already in decline.

The main reason for these industries declining was the failure of the business owners to modernise. The product was of high quality and the demand was there so they had little excuse. The businesses required capital investment and many of them had the means to do so. They lacked the foresight and 'solved' the problem by recruiting cheap immigrant labour from Pakistan instead of investing in new machinery. The inevitable outcome was that the businesses eventually failed as cheaper products were produced abroad. Ironically, most of the machinery from the mills ended up being exported to places like Pakistan even though it was mainly obsolete.

lemonjelly

Seems to me that the BoE is aware, & has concerns about inflation & its impact, though is not ready to bump IR's at this time.

So probably unfair to accuse them of being complacent.

http://news.bbc.co.uk/1/hi/business/8634156.stm

Interesting that retail sales are worse than expected at a time when inflation is rising faster than expected. Kinda suggests that there are still people engaging in forms of belt tightening...

http://news.bbc.co.uk/1/hi/business/8636733.stm

Charterhouse

StevieJ wrote: »

But higher interest rates will cause Sterling to appreciate thus reversing a major part of the cost plus inflation, agree longer term it is wages that matter.

But the Bank of England has made it very clear that they absolutely love a weak pound.