Runaway inflation force rate hike soon

Really2

lemonjelly wrote: »

The key things are that current inflation is not being caused by things which can be affected by the BoE's policies/remit. The VAT rise hasn't helped at all, however. I'm not convinced that inflation will plummet like some believe in 2012 because from that point VAT will be stripped out of the figures. I think it'll come down a little, but only marginally.

Food and fuel and energy costs are the drivers (;)) at the moment. The risk is that these affect pretty much everyone. But the poorest are hit the hardest. Oh, & lets not forget the poor pensioners with all their savings!

With the anticipated rest of the electric/gas providers price increases, and the ongoing issues with food costs, I cannot see inflation falling to anywhere near the 2% target.



QE is NOT going to reduce inflation.

I think the issue is that many have heard that current inflation is temporary, however that "temporary" is dragging out a lot longer than even Merv believed when he made those statements. I do feel that inflation will crawl down, it won't suddenly drop, so it'll be around its current mark for a while. Even when IR's do start to rise (not that I feel the initial rises will have any effect on inflation).

The fact that it was banged on about as "temporary" which most people assumed meant very short term - not necessarily what Merv meant, but he allowed people to believe that anyway - or the blip is lasting longer than even he/the BoE thought. Many laypeople are therefore losing confidence in what the BoE says.

Of course, they may have not anticipated food & fuel inflation being as significant as they are.

We're hurting because they are essentials that we're all exposed to. Retail figures are showing that most of us are cutting back on all other forms of expenditure. This stuff, we have less choice.

Good Post LJ and you are right.
This is the adjustment in the standard of our living, as the east increases demand we in the west start to feel the pain (we have had it good for years)
Costs will go up, demand will fall as a result. It will work it's way out eventually but it is unavoidable, the whole western world will feel it.

As Gen says, deflation is not out of the question yet.

Really2

Graham_Devon wrote: »

Ok, to cut 15 pages from the discussion.

You quoted me, asking me what my post tells me, and asking me what they will target. You included something about a loaf of bread, in relation to my post of the US and Greece being in trouble. I'm not sure what the loaf of bread had to do with it really, but there we go.

I have then asked you what the BOE CAN target. Personally i don't believe they can target anything specifically at the moment, with any meaningful policy to stimulate whatever they are targetting (whether that be growth, jobs, houses, loaves of bread).

You've replied, not answering my question, but just stating they will continue as they are. I assume you mean keep base rates low, ignore inflation, no more QE.

I talked about dropping rates, because in my mind, targetting something, means actually doing something. Changing base rates is normally a way of targetting something.

- QE would increase inflation.
- Just spending more isn't really possible. We'd be following the route of the US. Didn't really help them.
- Interest rates, we can drop them 0.5%, but not sure what that's going to achieve.

So what can we do to target something if the US wobbles and causes another downturn?

And just so that we are clear, I'm talking actively target something.

I'm open to debate on this one, as I think it's an interesting debate to be had. I won't twist anything you say, and hopefully you could do the same, and a proper debate could be had, which would be nice!!

Ok graham, To be fair, I did answer your question and it is as you understand it. (we can't do much).
My further response is to LJ (Above) it is an adjustment of living standards in real terms.
It won't be nice for many but we will have to get use to it.

Although used a lot I think stagnation is the term rather than down tern.
For the last 2-3 years I have been talking about limp growth lasting up to 5 years. My view on that is unchanged, it is all part of the rebalance of wealth IMHO.

Graham_Devon

lemonjelly wrote: »

QE is NOT going to reduce inflation.

That was my point.

lemonjelly

Really2 wrote: »

Good Post LJ and you are right.
This is the adjustment in the standard of our living, as the east increases demand we in the west start to feel the pain (we have had it good for years)
Costs will go up, demand will fall as a result. It will work it's way out eventually but it is unavoidable, the whole western world will feel it.

As Gen says, deflation is not out of the question yet.

Thank you.:)

I don't think people expected the adjustment to last as long as it has (or indeed, is going to). I also don't feel this was anticipated by the BoE/ratings agencies and so forth (hence a loss of confidence in the experts). Certainly many lay folk didn't anticipate it, and as such aren't aware how long they are likely to experience this pressure on household budgets. A continuation of the unpredictability we've had the past 2 years.

Graham_Devon wrote: »

That was my point.

It is one I agree with Graham. Thing is, people keep harking on about IR rises from a very narrow perspective - house prices to rise or fall, or their savings, or inflation figures as if a) the powers within the BoE remit will affect these things, and b) that thing affecting that person is the main focus of the BoE.

I think chucky regularly posts that this baby is going to be a longer ride than we think. He dead right.

Really2

lemonjelly wrote: »

TThing is, people keep harking on about IR rises from a very narrow perspective - house prices to rise or fall, or their savings, or inflation figures as if a) the powers within the BoE remit will affect these things, and b) that thing affecting that person is the main focus of the BoE.

Agree, People forget the Boe remit is to promote economic stability and to target inflation.

But BOE can only slightly effect inflation caused by the currency.
And the only other type it can fight is that caused by money.

In our current situation the increases are all virtually impossible to target.
VAT, Cant do anything. Oil & GAS + food all big increases that currency manipulation is likely to have little to no effect on.

current inflation is not caused by to much money chasing goods either.

So although their remit is to target inflation the things causing inflation are virtually impossible to target with the weapons the BOE have.
Inflation of other goods is falling, a big hint that it is not down to our exchange rate.

brian_723

ess0two wrote: »

I admire your're concern for the economy,don't let it mask the fact you expect a cheap house.

or perhaps one that is not over priced would be nice enough ,and they are over price now as house hold income becomes ever more stretched .

ess0two

brian_723 wrote: »

or perhaps one that is not over priced would be nice enough ,and they are over price now as house hold income becomes ever more stretched .

So for this purpose alone,rates should rise?

chucky

Graham_Devon wrote: »

Erm, well if it helps. Me.

oh ok, i thought you were interested in that debate. you obviously were taking jibberish again

Graham_Devon wrote: »

I'd be interested in that debate.

chucky

lemonjelly wrote: »

QE is NOT going to reduce inflation.

it's not guaranteed to increase it either.

swapping one asset class for another asset class does not increase inflation. the purpose of QE is to improve liquidity in the economy.

i'd worry about deflation more than inflation personally - i can't see massive growth so inflation won't be long term so some degree of deflation or probably stagflation could take place.

Milarky

@GD and Really2,

Take it outside please