RPI could be 20% before end of decade - says expert

oldvicar

Writing in Saturday's Daily Telegraph 'Your Money' section, Ian Cowie's comment piece said:

Tom Becket of PSigma Investment Management told me:

"Keeping rates artificially low now is storing up trouble for later. The price of the current great moderation will be high inflation in future. The retail prices index (RPI) could hit 20pc before the end of this decade."

How likely does this scenario seem to you?

IronWolf

Sounds like typical schoolboy economics, thinking printing money = inflation as some sort of law.

In times of recession and depression, deflation is usually seen, so all the current interest rates and money printing are doing is avoiding the deflationary period, which would be crippling to home owners and the countries finances. It doesn't mean there will be huge inflation in the future.

MrRee_2

If no-one is buying then inflation cannot happen - simple as.

If RPI is 20% then we are back to the merry days of the 1970's! I remember them very well indeed.

Wages were increasing at 20%+ and so people were not that worse off in reality.

What worked brilliantly was Mortgages .... you could borrow 3 times your salary, buy a house, within 2 years you were earning 50% more so that the debt was tiny with respect to your take-home pay .... so, you went out and bought a bigger house! Two years later you repeated the process.

This is how the elderly of today secured their expensive houses! Their debt was written off effectively by high inflation!

Don't be frightened by the prospect, it is not as scary as you may think!

Blacklight

MrRee wrote: »

If no-one is buying then inflation cannot happen - simple as.

If RPI is 20% then we are back to the merry days of the 1970's! I remember them very well indeed.

Wages were increasing at 20%+ and so people were not that worse off in reality.

What worked brilliantly was Mortgages .... you could borrow 3 times your salary, buy a house, within 2 years you were earning 50% more so that the debt was tiny with respect to your take-home pay .... so, you went out and bought a bigger house! Two years later you repeated the process.

This is how the elderly of today secured their expensive houses! Their debt was written off effectively by high inflation!

Don't be frightened by the prospect, it is not as scary as you may think!

We're already a quarter of the way there and have been for some time.

Generali

oldvicar wrote: »

How likely does this scenario seem to you?

Highly unlikely to me.

In my 40 year lifetime inflation in the UK topped 20% briefly a couple of times IIRC.

As Mr Marley said:

"If you learn from your history,
You will know where you're coming from"

oldvicar

Generali wrote: »

Highly unlikely to me.

In my 40 year lifetime inflation in the UK topped 20% briefly a couple of times IIRC.

Statistically then, that's twice in forty years, or once every other decade. Or, statistics willing a 50% chance of it occurring in any one decade. And you call that unlikely?

MrRee_2

Blacklight wrote: »

We're already a quarter of the way there and have been for some time.

It may be a quarter there ...... but, that's the 'easy' 1/4!!

The second 1/4 to 10% is much harder to reach under current world conditions ..... 15% would be unthinkable, 20% impossible.

That's just my opinion ..... there are just not enough inflationary influences to drive it much higher.

Really2

oldvicar wrote: »

Statistically then, that's twice in forty years, or once every other decade. Or, statistics willing a 50% chance of it occurring in any one decade. And you call that unlikely?

I think the point is the backdrop was very different.

Here is a look at historical data.
http://safalra.com/other/historical-uk-inflation-price-conversion/

Thrugelmir

MrRee wrote: »

Wages were increasing at 20%+ and so people were not that worse off in reality.

Pay increased on the back of technological improvements and increased productivity.

MrRee_2

Thrugelmir wrote: »

Pay increased on the back of technological improvements and increased productivity.

I was there ..... pay increased primarily because inflation was running so high - unions were strong and inflation+ pay rises were considered a right.

Technology was no faster than it is today - increased production? Are you having a laugh? Do you remember British Leyland as an example?

oldvicar

Really2 wrote: »

I think the point is the backdrop was very different.

Here is a look at historical data.
http://safalra.com/other/historical-uk-inflation-price-conversion/

I'm sure it will be different now. But what happened back in 1800 - to cause Inflation for the year of 36.5% ?