Two thirds of people think inflation will rise in next 12m

Generali

ILW wrote: »

Trouble with inflation is that when it is expected to rise, it gives suppliers and retailers an excuse to put prices up and that is now happening. Part of the problem arises when people start to believe that the BoE are incapable of doing anything about it.

Retailers need no excuses to increase prices, they will if they can. Inflation expectations aren't linked to increases in prices directly. They can be linked indirectly by increased wages leading to increased costs and demand leading to higher prices.

ILW

Generali wrote: »

Retailers need no excuses to increase prices, they will if they can. Inflation expectations aren't linked to increases in prices directly. They can be linked indirectly by increased wages leading to increased costs and demand leading to higher prices.

Not strictly true.

Consumers are more likely to accept price increases if they believe inflation is increasing. The original article does refer to this as a self fulfilling prophesy.
The housing market is a prime example of expectation actually causing inflation at times.

Heyman_2

Graham_Devon wrote: »

The BOE are already facing pressure from the markets. This just adds to the pressure, as if the ordinary public expect inflation to rise, the press will, rightly, state everyone expected it to rise, and the BOE did nothing.

The media had already set their agenda for interest rate rises before this survey, so this will make no difference.

The key in this survey was how many people would be expecting a pay rise to compensate for the increase in inflation. The answer is not many.

So I don't see how this translates into added pressure on the BofE.

Generali

ILW wrote: »

Not strictly true.

Consumers are more likely to accept price increases if they believe inflation is increasing. The original article does refer to this as a self fulfilling prophesy.
The housing market is a prime example of expectation actually causing inflation at times.

The self fulfilling prophesy (according to economic theory at least) is the 'wage price spiral' where rising prices lead to rising wage demands which increase costs so prices rise so wages increase and so on. Clearly that isn't the case here.

You make a good point about the housing market. I don't think that in normal times of relatively low inflation people say, "Get down to Tesco to buy your onions before they go up tomorrow" or "you'll miss the banana boat".

ILW

What you will find for example, is your local pub pub will put 10 or 15p on a pint, very few will query it and just put it down to inflation, wheras in low inflation times they would question why the price has risen.
Much of pricing is based on what a seller can get away with. and very little to do with economic fundamentals.

Generali

ILW wrote: »

What you will find for example, is your local pub pub will put 10 or 15p on a pint, very few will query it and just put it down to inflation, wheras in low inflation times they would question why the price has risen.
Much of pricing is based on what a seller can get away with. and very little to do with economic fundamentals.

I've yet to see any paper showing any evidence that people are more accepting of prices rises in a higher than a lower inflationary environment.

There is a lot of evidence that the theories of supply and demand are pretty solid. If you have evidence that prices are set by a combination of inflationary expectations and what sellers (suppliers) can get away with then there are thousands of economists across the world that would be very interested to see this as it could revolutionise the subject.

blueboy43

Graham_Devon wrote: »

The BOE are already facing pressure from the markets. This just adds to the pressure, as if the ordinary public expect inflation to rise, the press will, rightly, state everyone expected it to rise, and the BOE did nothing.

They have been wrong long enough.

The deflationists have been wrong long enough.

what pressure from the markets is there ?

Why are Gilt yields less than they were a month ago if there is all this pressure from the markets ?

What effect will UK interest rates have on commodity prices ? Next to nothing.

Rates will go up at some stage as they can only move in one direction from here but all the evidence shows that they are unlikely to go up by much in the next 12 months.


Lets face it, the hyper-inflation nutters have been proven utterly deluded.

blueboy43

ILW wrote: »

What you will find for example, is your local pub pub will put 10 or 15p on a pint, very few will query it and just put it down to inflation, wheras in low inflation times they would question why the price has risen.
Much of pricing is based on what a seller can get away with. and very little to do with economic fundamentals.

you clearly don't drink in the pubs I go to. Locals are up in arms when they raise prices by 4p when duty goes up by 3p in the budget.

Le_Chuck

Sibley wrote: »

I've got a feeling they might cut rates to 0%.
Now that would really help everyone.:)

everyone? woulnd't help me or my parents or the millions of pensioners out there

shortchanged_2

RenovationMan wrote: »

The economy is overheating, we should raise interest rates in order to curb people's extravagances and bring people's over spending under control.

....Oh.

Lets face it RenovationMan, most peoples extravagances over the last few years have mainly been linked with property.