CPI hits 4.4pct

DervProf

Kohoutek wrote: »

In other words, you want borrowers to be forced to default.

In your words I might, but in my words I want borrowers to be able to pay their debts. I want the banks to lend responsibly, and therefore the BoE to have the option of setting interest rates at a suitable level to keep inflation under control and assist the whole economy.

What I don't want is people to start to believe that borrowing large amounts of money is becoming less risky. People tend to have short memories, and without looking back a little, you could be forgiven that debt carries little risk.

Mr_Mumble

The real interest rate (RPI - Base Rate) was -5.0% this month. That's the lowest rate since December 1977!

This month's real interest rate took out both the April 2010 post-credit crunch low of -4.8% and the low of May 1980 at -4.9%.

Click for historic real interest rate chart:


Inflation doves (previously deflationistas) have reached a new low in this thread. Trying to compare an ex-tax inflation rate with a benchmark that includes tax!

RPIX is 14 points higher than RPIX ex-indirect taxes. If the BoE were targeting an ex-indirect taxes rate it would have to cut at least 25 basis points off the target. RPIX ex-tax would therefore target 2.25% compared to the 4.1% it was in February 2011. Any way you shake it we have a build up of inflation that needs to be tackled now.

lisyloo

Just done a bit of research to see if I can find these "hundreds" of inflation linked savings products. And the telegraph have come up trumps......

http://www.telegraph.co.uk/finance/p...r-savings.html

Not exactly hundreds though.

Nevertheless, it a choice available to people that they can take if they want inflation proofing.
I don't see why they should be protected from the failure to do so anymore than they would be protected from the failure to buy any other product that offered some form of protection from risk.
It all comes down to personal responsibility and financial planning.
No-one is immune whether borrower or saver (with the exception of capital protection via the FSCS).

Kohoutek

DervProf wrote: »

In your words I might, but in my words I want borrowers to be able to pay their debts. I want the banks to lend responsibly, and therefore the BoE to have the option of setting interest rates at a suitable level to keep inflation under control and assist the whole economy.

What do you think should happen if there's a dramatic slowdown in economic activity at a global level, thereby reducing the ability of even responsible borrowers to pay responsible lenders?

lisyloo

When Labour cut VAT the BoE used CPI falling to below 2% a reason to slash interest rates in fear of deflation. Now its convenient for the BoE to use the rise in VAT as a reason not to raise rate. Its either one or the other - it shouldnt be both.

I don't remember the history but I totally agree it shouldn't be both.

ILW

I would not mind a little deflation now.

ILW

Kohoutek wrote: »

What do you think should happen if there's a dramatic slowdown in economic activity at a global level, thereby reducing the ability of even responsible borrowers to pay responsible lenders?

Depends how you define resposible.

DervProf

RenovationMan wrote: »

Thank you for the forgiveness. I am childish, though thats good because too many take themselves far too seriously on here!

Global Bonds:
http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results?companyid=&tab=prices&sectorid=106&tab=prices&x=9&y=7

Index Linked Gilts:

http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results?companyid=&tab=prices&sectorid=135&tab=prices&x=6&y=8

UK Gilt:

http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results?companyid=&tab=prices&sectorid=127&tab=prices&x=11&y=7

GBP Strategic Bonds:
http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results?companyid=&tab=prices&sectorid=152&tab=prices&x=20&y=11

GBP Corporate Bonds:
http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results?companyid=&tab=prices&sectorid=150&tab=prices&x=8&y=6

Hmmm, a lot of those products don't seem to be inflation proof, they seem to carry a degree of risk. A high degree of risk in some cases.

Not to mention the charges.

DervProf

RenovationMan wrote: »

I chose bonds rather than equities because they tend to be viewed as safer and someone who predonimantly uses savings accounts obviously are low risk. However, If you want to protect savings against inflation then you have to introduce an element of risk. It is well known known in financial circles that if you are investing long-term, for example for a pensions, then you cannot keep your savings in cash and not expect inflation to erode them.

The charges on funds vary depending on the amount of effort required by the fund manager (and expertise). You can get very low charges on index trackers, but then you get average performance. H-L rebate some fo the charges back into your ISA and more often than not the fund purchase and switches are free.

I know a fair bit abouit these funds and products, I have invested in a few of them.

This was the original advice offered.......

lisyloo wrote: »

They are shielded from capital loss.
If they want inflation proofing in addition then they should take out the relevant product.

I replied, implying that there weren't many of these products available.

You then told me that there are hundred available + .

So, I ask again, where are these hundreds of inflation proof products, shielded from captial loss ?

blueboy43

Mr_Mumble wrote: »

The real interest rate (RPI - Base Rate) was -5.0% this month. That's the lowest rate since December 1977!

This month's real interest rate took out both the April 2010 post-credit crunch low of -4.8% and the low of May 1980 at -4.9%.

Click for historic real interest rate chart:


Inflation doves (previously deflationistas) have reached a new low in this thread. Trying to compare an ex-tax inflation rate with a benchmark that includes tax!

RPIX is 14 points higher than RPIX ex-indirect taxes. If the BoE were targeting an ex-indirect taxes rate it would have to cut at least 25 basis points off the target. RPIX ex-tax would therefore target 2.25% compared to the 4.1% it was in February 2011. Any way you shake it we have a build up of inflation that needs to be tackled now.

I tend to agree, but if the link between interest rates and the exchange rate was so simple then we would never have left the ERM and might have been shanghaiied into the Euro.

The government is taking a fair extra amount out of the economy in taxation, is cutting spending in real terms (particularly when you exclude interest payments and overseas aid), does it need to repeat the Howe experiment in loony monetarism from the early 1980's and increase interest rates ?

Almost all the current inflation is a result of commodity price inflation (including energy) and taxation. What interest rate would you suggest that would make sterling stronger against the dollar ?