Gut-busting inflation

guitarman001

http://www.statistics.gov.uk/pdfdir/cpi1210.pdf


With house prices slightly declining (let's say staying flat) this is an effective 4-5% drop in prices - added onto the last two months' 3% drops in asking prices on rightmove. (I'm all for lower prices)

Compared to interest in many savings accounts, many are worse off - never mind comparing to any pay rise next year if you're lucky.

And even WITH rates held low latest news tells us 1million are in mortgage arrears and struggling.

Rates must be increased! Inflation is running away and will only get worse when VAT increases and then petrol/food/train fare increases etc come into play. The only positive side is half my savings are in NS&I index-linked - other than that, it's gloomy.

Thoughts?

yelf

Interest rates are increased to combat inflation which is the result of PEOPLE SPENDING MORE ON PRODUCTS, PUSHING UP THE PRICE aka Demand Pull. Increases in VAT and fuel duty are irrelevant whan taking into account whether rates should rise or not.

opinions4u

Gut-busting inflation

It's below 5% !!!!!!.

Take a look at the 1970s, or the end of the 18th century!

It's a rather good web site from the Bank of England!

guitarman001

I realise it's low compared to back then (also I'd rather have a lower capital amount for a mortgage and those higher rates for a few years than these ridiculously high prices and low rates).

My point was more about the length of time rates have been like this and how savers are getting a bad deal.

somethingcorporate

yelf wrote: »

Interest rates are increased to combat inflation which is the result of PEOPLE SPENDING MORE ON PRODUCTS, PUSHING UP THE PRICE aka Demand Pull.

Can you please explain that?

Increased demand usually has the opposite affect as supply increases to meet demand and prices fall. I cannot see the logic in your statement (even though you did kindly put it in caps).

Thankee!

Linton

somethingcorporate wrote: »

Can you please explain that?

Increased demand usually has the opposite affect as supply increases to meet demand and prices fall. I cannot see the logic in your statement (even though you did kindly put it in caps).

Thankee!

No - initially there are lots of people after a small amount of goods and therefore the sellers can put the prices up knowing they will still get a sale. Also the buyers, if they really want the goods, are forced to try and outbid each other to get them. The prices will increase until buyers drop out and the number of buyers equals the number of sellers.

As it becomes more obviously profitable to produce more goods after a while the price will go down again.

That's the theory anyway.

Cautious_Investor_3

yelf wrote: »

Interest rates are increased to combat inflation which is the result of PEOPLE SPENDING MORE ON PRODUCTS, PUSHING UP THE PRICE aka Demand Pull. Increases in VAT and fuel duty are irrelevant whan taking into account whether rates should rise or not.

Sorry but don't buy this.

A price rise is a price rise irrelevent of what causes it. Therefore VAT increasing, will increase inflation, this will put pressure on Bof E to push up interest rates to reduce inflation.

There is a link between VAT rising and interest rates rising.

Cautious_Investor_3

As a general point, I;m not sure at the term "gut busting" however I would say inflation is a real problem.

Take a 65 year old, it is generally agreed that the rate of inflation they suffer is higher than say a 30 year old, I have seen figures of double RPI. If this is true and they say are getting 3.5% (max) net on their savings then they are losing money in real terms very very quickly.

Compound this over a few years and the problem becomes very real.

Inflation is useful for some at the moment as we try to bring down the structural debt, but it impacts very heavily on some.

And remember that many pensions will be linked to CPI (obv not the state pension) in future, which is way below the actual rate of inflation suffered by pensioners.

The Cautious Investor

purch

There is a link between VAT rising and interest rates rising

Will increasing the Base Rate reduce the rate of VAT ?

lvader

Cautious_Investor wrote: »

Sorry but don't buy this.

A price rise is a price rise irrelevent of what causes it. Therefore VAT increasing, will increase inflation, this will put pressure on Bof E to push up interest rates to reduce inflation.

There is a link between VAT rising and interest rates rising.

You can't fight artificial inflation with interest rates and the BoE knows this. If you discount the VAT and fuel increases that you can't do anything about then inflation is currently about as low as can be and still be healthy.

yelf

Cautious_Investor wrote: »

Sorry but don't buy this.

A price rise is a price rise irrelevent of what causes it. Therefore VAT increasing, will increase inflation, this will put pressure on Bof E to push up interest rates to reduce inflation.

There is a link between VAT rising and interest rates rising.

Yeah, but the whole point of curbing inflation is to stop people spending excess money on goods which in turn bumps up the price. An increase in VAT will mean prices go up, but not because of increased spending - therefore increasing rates purely on this basis is no use, as the increase in price is not related to increased spending.

Imagine if every producer of goods in the "CPI basket" increased their prices simultaneously by 5% overnight - would this justiify increasing interest rates to curb inflation?