What will Mervyns excuse be this time?

michaels

This assumes though that there is no cost push pressure in the system - ie wage deals are at <2% and not rpi+<2% on average.

HAMISH_MCTAVISH wrote: »

No. Just for this year.

Next year inflation will fall as the VAT rise drops out of the equation.

CPI-Y and CPI-CT (which exclude tax rises) are right around the 2% target.

lemonjelly

michaels wrote: »

This assumes though that there is no cost push pressure in the system - ie wage deals are at <2% and not rpi+<2% on average.

Exactly why I didn't state it'd last only a year in my post.;)

ILW

As a small business, we are finding that the larger suppliers are now adding in inflation price increases of 3-4% because "that is what inflation is" and nothing to do with import prices. It is a mindset which could easily run away with itself.

gagahouse

Dec10 Jan11

CPIY 2.0 2.4
CPI_CT 1.9 2.3
RPIY 3.5 3.8

http://www.statistics.gov.uk/pdfdir/cpi0211.pdf

purch

It is a mindset which could easily run away with itself

That is the biggest danger.

The BOE at the very least needs to address the situation by talking in a manner that at least gives the impression that a tightening is possible, sooner rather than later.

Milarky

It's inflation Jim, but not as we know it...


IOW inflation at 2% was always fictitious because it combined 'low' imported and 'high' domestic components. Domestic inflation was therefore allowed to sit well above 2% throughout the period of supposed price stability - which was only achieved through falling import prices (i.e. factors which it is now MPC orthodoxy to talk up)

But even then the MPC couldn't face facts (being unpopular) and do what was required of them so they used a further device - the MTT or 'monetary time trumpet' - by which price stability was defined in Augustinian terms - always just two years away - not quite there, just yet! This allows us to have '3%' CPI and still 'be on target' for 2%. Of course with 4% to still be 'on target' something has to give. Expect a letter to George Osborne but don't expect much more

Also, see 'Stages of grief'

ILW

purch wrote: »

That is the biggest danger.

The BOE at the very least needs to address the situation by talking in a manner that at least gives the impression that a tightening is possible, sooner rather than later.

That is my biggest worry.

Once the general opinion is that inflation is 4-5% (for whatever reason) and that the BoE are happy to let it happen it bocomes a self fulfilling prophesy.

I believe that is what could very easily happen if the bank do not send out a message that they take it seriously.

Possibly a quarter percent rise could be on the cards to address this. I cannot believe such a small rise would have any real effect on growth, house prices, mortgage payers, savers etc but just may help people believe that the issue of inflation is being addressed.
Sentiment can be a large driver of inflation.

Generali

purch wrote: »

That is the biggest danger.

The BOE at the very least needs to address the situation by talking in a manner that at least gives the impression that a tightening is possible, sooner rather than later.

With unemployment at 2,500,000, high levels of debt personal debt that need servicing (you don't get paid if you strike for higher wages) and a non-Labour Government (so the party in power isn't reliant on unions for their funding), workers probably have very little power to push for higher wages.

Wookster

Generali, at what point does a series of 'one off' shock become a trend?
It looks like these excuses are wearing thin now.

Generali

Wookster wrote: »

Generali, at what point does a series of 'one off' shock become a trend?
It looks like these excuses are wearing thin now.

Look at inflation ex-tax, that tells you how prices are rising rather than how the cost of living is changing right now. Inflation ex-tax is within the bounds of the target for CPI which suggests to me there is no problem.

Look also at changes in wages. If that starts to rise then potentially there is a problem as wage rises => price rises => wage rises. For that to happen, labour (as opposed to Labour) needs the power to push up wages. They don't have that power right now IMO.