Interest rates , Inflation , Wage inflation am i wrong ?

Hereward

free4440273 wrote:

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:)

I'm intrigued, why do you think the rate of inflation is 8%? Personally, the only thing I can think of that has gone up by that much is Energy (Gas and Electricity), and that is a relatively minor part of my expenditure. IIRC, these are already included in the CPI.

Market_Oracle

Referring to my financial records, my average monthly rate of expenditure is up 29% on where it was 12 months ago ! And my income is up 5%.

Offcourse its not exactly my rate of inflation, rather the increase in rate of consumption

free4440273

Hereward wrote:

I'm intrigued, why do you think the rate of inflation is 8%? Personally, the only thing I can think of that has gone up by that much is Energy (Gas and Electricity), and that is a relatively minor part of my expenditure. IIRC, these are already included in the CPI.

energy (as you correctly point out), council tax (soon to go up even more), food, clothes (need to put this in context obviously - what i mean is paying Asian workers slightly more than a pittance), house prices, plus the fact that these silly incremental .25 increases are not delivering the message. i just don't believe this new labor nonsense of 'it's different this time'. for me, the economy goes in cycles. on a related point, i don't think the excesses of the dot-com boom were pricked - low interest rates saw to that (not) being the case. i ask myself this: as in the 1980s, house prices are getting way ahead of themselves (even more so), plus the longevity of this boom has gone on way beyond the 80s - interest rates then were in double figures. even excluding for the fact that inflation was higher then, real rates at present are way too low. the BoE can keep putting off the inevitable if it so wishes, but personally i think this delay will just make matters far worse long-term - i mean they will be forced to ratchet up rates quicker and more decisively than before. why don't they just bite the bullet now?

Market_Oracle

the well signalled step by step rises, are to ensure financial stability.

The BoE has done a relatively good job thus far, when compared to the chaos of years past.

Yes, interest rates are on the up and up, but they are pretty stable in light of rate rises across the pond and Europe, which have risen more during 2006, then in the UK.

Hereward

free4440273 wrote:

energy (as you correctly point out), council tax (soon to go up even more), food, clothes (need to put this in context obviously - what i mean is paying Asian workers slightly more than a pittance), house prices...

Interesting. Where I live my council tax has only gone up by 5% compared to last year, which I believe was close to the government's cap, so if yours went up by more that this then I would question why your council wasn’t capped. Again I haven't really noticed any changes in the prices of food or clothes over the last few years, I admit there may be one or two exceptions, but my general expenditure (taking in the volume of items) has hardly changed. As to house prices they are influenced by local factors, so whilst you may have experienced HPI in excess of 8%, the properties near me have only increased by 4% and the prices are currently falling.

Don’t forget that although wages may not be rising faster than prices in percentage terms, in theory wage inflation is greater then price inflation in financial terms as a small percentage increase of a large number can be bigger than a large percentage increase in a small number

free4440273

Hereward wrote:

Interesting. Where I live my council tax has only gone up by 5% compared to last year, which I believe was close to the government's cap, so if yours went up by more that this then I would question why your council wasn’t capped. Again I haven't really noticed any changes in the prices of food or clothes over the last few years, I admit there may be one or two exceptions, but my general expenditure (taking in the volume of items) has hardly changed. As to house prices they are influenced by local factors, so whilst you may have experienced HPI in excess of 8%, the properties near me have only increased by 4% and the prices are currently falling.

Don’t forget that although wages may not be rising faster than prices in percentage terms, in theory wage inflation is greater then price inflation in financial terms as a small percentage increase of a large number can be bigger than a large percentage increase in a small number

re the part i have highlighted in bold - that's an excellent point you make by the way

melbury

cloud_dog wrote:

Its the way its always been, its not limited to a particular party, and its not just the actual inclusion of items it depends on their weighting.

Japan is a good example, where recently they raised interest rates from 0 to 0.25%. The inflation figures going forward indicated the (probable) need for a nother rise and Bank of Japan governers had indicated this was likely. The politicians didn't want another rise as they thought it may stop the resurging economy from continuing its growth (thereby voters feel good factor) so within approx 2 months of the inflation figures being released they changed the basket and re-quoted the inflation figure, thereby negating the evidence the BOJ had for raising rates again (at least in the intermediate future).

In the U.S. their inflation rate is 4.??% (I think) but the general consensus is that it is probably nearer 8%.

cloud_dog

No, sorry, I don't agree. This isn't the way it has always been done. If I remember correctly the way inflation is worked out was changed a couple of years ago, it is all manipulation. As another post stated, if the rises in energy prices are anything to go by as well as house prices, inflation should be going through the roof.

Market_Oracle

melbury wrote:

No, sorry, I don't agree. This isn't the way it has always been done. If I remember correctly the way inflation is worked out was changed a couple of years ago, it is all manipulation. As another post stated, if the rises in energy prices are anything to go by as well as house prices, inflation should be going through the roof.

The stats can be manipulated and are, but the markets are much more difficult to manipulate, and a strong currency tends to put downward pressure on future inflation.