Interest rates , Inflation , Wage inflation am i wrong ?

free4440273

and to have house price inflation removed...i wonder why they chose to do that. hmmm, let me think

Xbigman

Because house prices are not related to the cost of building a house.

I realize that your question wasn't serious, but that is the answer.
Regards



X

Market_Oracle

roswell wrote:

Hi,

First off If thsi is in the wrong place please forgive me or move it but i have a question to ask and thoguht this may be the board of most experiance.

I have been thinking about the BOE target of 2% inflation and the change in interest rates to 5% to, wage inflation is currently in the region of 4 %.

At what point witht he BOE stop raising interest rates to keep inflation in the 2% mark ? My thoughts are that if inflation is 2% wage inflation is double inflation target its goign to impact inflation surely ?

More to the point if interest rates hit say 10 % to keep inflation at 2% wouldnt the county become bankrupt ?

or have i got this all wrong ?

There are other key factors involved such as the Growth rate of the economy, i.e. should the UK slow sharply, I'd guess that the BoE would cut interest rates to stimulate the economy, even if the inflation rate is at the high end of the range. It would probably be co-ordinated with goverment policy to stimulate growth

The widest spread between RPI and Base rates has been about 6%, and that for only brief periods of time, the current spread is about 1.5%, which suggests there is room for interest rates to rise further, perhaps another 0.5%.

ReportInvestor

Interesting article in today's Times by Gary Duncan

He argues that one effect of globalization is the reduced impact on the inflation rate of the bank's interest rate decisions (e.g. in the low rate period, cuts didn't seem to stimulate inflation like they used to).

This loss of power might cut the other way, however, and mean that the bank has to raise interest rates more sharply or higher to have the effect that it wants.

free4440273

Xbigman wrote:

Because house prices are not related to the cost of building a house.

I realize that your question wasn't serious, but that is the answer.
Regards

X

actually my question WAS serious. they have excluded house prices from the inflationary criteria which is absolutely absurd. real interest rates should be far higher therefore - possibly at present 8 per cent. anyway, these 'measly' .25 point increases do not hammer the point home. full one percentage increases would be the way to go if the BoE were serious

Milarky

ReportInvestor wrote:

This loss of power might cut the other way, however, and mean that the bank has to raise interest rates more sharply or higher to have the effect that it wants.

The MPC seems to trade on our willingness to supsend our belief. It is, alas, a 'one trick pony'. They don't have a secret weapon, and they err on the side of caution - so that by the time they do act it's probably too late and everything is drfiting away for them.

Hereward

free4440273 wrote:

actually my question WAS serious. they have excluded house prices from the inflationary criteria which is absolutely absurd. real interest rates should be far higher therefore - possibly at present 8 per cent. anyway, these 'measly' .25 point increases do not hammer the point home. full one percentage increases would be the way to go if the BoE were serious

If you use Milarky's table in post 2 and compare RPI with RPIX (RPI includes house prices and RPIX excludes them) then you can see that with HPI included the headline rate of inflation is only 40 basis points higher than if they were excluded. On this basis interest rates wouln't be significantly higher than they are today.

Milarky

free4440273 wrote:

actually my question WAS serious. they have excluded house prices from the inflationary criteria which is absolutely absurd. real interest rates should be far higher therefore - possibly at present 8 per cent. anyway, these 'measly' .25 point increases do not hammer the point home. full one percentage increases would be the way to go if the BoE were serious

You are asking for a different kind of 'cost of living' index. 'Retail prices' only include things you buy and sell repeatedly. Houses are assets, so are counted (and historically never have been). But the general point you raise is a good one - can we continue to have confidence in an index which has been subject to so many 'adjustments'

free4440273

Milarky wrote:

You are asking for a different kind of 'cost of living' index. 'Retail prices' only include things you buy and sell repeatedly. Houses are assets, so are counted (and historically never have been). But the general point you raise is a good one - can we continue to have confidence in an index which has been subject to so many 'adjustments'

yeah, i'd agree with that; you expressed it better than i did. but i still personally think - and i know many here would disagree - that real rates are too low. they should be 8 per cent presently:)

ashm1

Hi,

http://travel.guardian.co.uk/news/story/0,,1946896,00.html

Here come the pay deals!

Kind regards,

Ashley.