Inflation falls to 2.8% in May

RUN_RABBIT_RUN

that's it, i'm getting onto my forex broker right now to get me some of these -

Masomnia

Generali wrote: »

Strictly speaking it's above target as the target is 2%. There is then a range of 1-3% and if CPI remains within that range the Guv'nor of the BoE doesn't have to write a letter to the Chancellor of the Exchequer to explain himself.

The 1-3% range is generally described as the target though.

The target used to be RPIX = 2.5%. As RPIX is 3.5% the BoE would be writing a letter again this month.

Yeah the 1 - 3% range is what I'm thinking of, it can't be possible to keep inflation constant at 2%.

Generali

Masomnia wrote: »

Yeah the 1 - 3% range is what I'm thinking of, it can't be possible to keep inflation constant at 2%.

It's not even possible to keep it between 1 & 3% realistically. I always felt that claims that it was possible smacked of hubris.

angrypirate

So, in the last 3 months brent crude has come down from $125 a barrel to $95. On the basis that nearly every aspect of our lives today is governed by oil, I dont suppose it has anything to do with this?

My next question is, if it takes a 25% fall in the price of oil over 3 months to bring inflation down from 3.5% in March to 2.8% in June, where would inflation be if this fall in crude oil hadnt occured?

Kennyboy66

Generali wrote: »

As the M4 measure of money supply has been falling by an average of £4,325,000,000 a month over the past 2 years, all this QE is just stabilising prices. Without it I reckon that deflation would have a pretty firm hold by now.

Don't forget that QE has a secondary impact: the BoE collects the coupons the Treasury pays and returns most of them as dividends to their shareholders, the UK Treasury. As the BoE owns about 1/3rd(?) of the Gilts in circulation, that's a lot of interest that taxpayers effectively don't have to find.

I thought that all the borrowing figures were net of financial interventions - such as QE

All that interest the the government pays to the BoE held gilts will come in necessary when QE is eventually un-wound and BoE suffers losses.

Generali

Kennyboy66 wrote: »

I thought that all the borrowing figures were net of financial interventions - such as QE

All that interest the the government pays to the BoE held gilts will come in necessary when QE is eventually un-wound and BoE suffers losses.

Perfectly true: if you take a buyer out of the market that is basically willing to pay any price for bonds and turn him into a seller he's likely to make a loss.

That is if QE is ever unwound of course. The Government could just replace the Gilts the BoE has bought with zero coupon perpetual bonds (aka cash) thus maintaining the solvency of the BoE and not having to take a hit.

Masomnia

They wouldn't take a loss overall (as in, with interest included) on the gilts if they're held to maturity though, will they?

purch

angrypirate wrote: »

My next question is, if it takes a 25% fall in the price of oil over 3 months to bring inflation down from 3.5% in March to 2.8% in June, where would inflation be if this fall in crude oil hadnt occured?

Or you could ask, where would inflation be if the price of Oil hadn't risen to over $100 in the first place ?

grizzly1911

purch wrote: »

Or you could ask, where would inflation be if the price of Oil hadn't risen to over $100 in the first place ?

Wonder what this will do to energy costs as one excuse for their increases was that they followed oil.

No it has come down from peak wonder if energy will follow?

There will no doubt be another reason lie forward purchases and such like.

robmatic

HAMISH_MCTAVISH wrote: »

It's not quite that simple.

Your wage has less purchasing power for the percentage of it you spend on inflating goods.

Which will be less than 100%.

So, for example, if inflation is 3% and you spend 50% of your wage on inflating goods, then your effective wage cut in real terms is 1.5%.

But even that isn't the whole story, as for example the income tax allowance changes which came in this year mean many low to mid earners are slightly better off.

So actually, while it is true most people's wages are not keeping up with inflation at the moment, the effective pay cut isn't as big as most people think it is.

The ONS even helpfully publishes the Tax and Prices Index (TPI) which partially represents this.

1. Series CZVL: Tax & Price Index: Percentage change over 12 months.! Not seasonally adjusted.
2. An index number showing the percentage change in gross income that taxpayers need if they are to maintain their real disposable income.
3. Via http://www.ons.gov.uk/ons/datasets-and-tables/data-selector.html?dataset=mm23; Select 2.2 RPI annual percentage changes 1948 to 2010 ; select CZVL (near the bottom).