Inflation hits 7 year high - Watch out higher rates coming

deemy2004

In the week when inflation nudges a 7 year high of 1.9% (CPI), the long anticipated interest rate hike can be near definetly be penciled in for May or June 05.

Now the key point of this and similar recent events such as the countless joblosses announced in recent weeks is the shift from a economy under control to an economy that is out of control of the government.

For virtually every variable you look at, looks bleak for the future as the government plays catchup trying to plug the various leaks that are springing all over the economic dam.

Who ever wins, and it looks 99% certain it will be labour, won't be able to delivery much of what they promise as they will be far too busy goign from crisis to crisis.

As unemployment turns up, economic growth turns down, inflation turns up, interest rates rise to well beyond the rates imagined.

Though with higher interest rates the future looks a little brighter for savers.

davidjwest

1.9% isn't all that much though is it? What targets do the government have for inflation?

surfcat

the target maximum is 2%

p3gg

surfcat wrote:

the target maximum is 2%

"Target maximum" or just "target"? I thought the _target_ was 2% -- i.e. that's the rate of inflation seen by the government as ideal, rather than a maximum or a minimum.

rchddap1

I think that the target is 2%, but if they go above or below that target by a certain percentage they have to write a report to the chancellor explaining why.

It would seem that a rate hike is on the cards for the BoE's next meeting. However, they do have more to think about that just the current inflation rate. For example, the effect the collapse of Rover is going to have. When they discuss interest rates, any change won't take immediate effect on the economy. So they have to try and work out what the economy will be like in say 6 months time and so what inflation will be like.

Personally I wouldn't like to make the call at the moment as there are a big mixture of indicators for either choice.

deemy2004

surfcat wrote:

the target maximum is 2%

The Target is 2%

If inflation is above 2% then rates rise to bring it back to 2%... As remember inflation trends. So the BOE know 2% today means more than 2% tommorrow ... well okay in a few months time...

So the rates rise to bring future inflation lower.

Also there are the financial markets... If rates don't rise the Financial markets see this as a sign of a weak economy and dump the currency which leads to even higher inflation and thus would require an even larger rate rise...

Which obviously the BOE understands as a likely scenerio... so they raise rates because a. inflation is at or near their target, b. that it is trending higher and c. because the markets expect them to raise rates.

deemy2004

rchddap1 wrote:

It would seem that a rate hike is on the cards for the BoE's next meeting. However, they do have more to think about that just the current inflation rate. For example, the effect the collapse of Rover is going to have. When they discuss interest rates, any change won't take immediate effect on the economy. So they have to try and work out what the economy will be like in say 6 months time and so what inflation will be like.

Actually eventhough unemployment has gone up by about 40,000. The number of people working has gone up by 140,000 thus the labour market has become even tighter which supports a rise in interest rates as obviously a tight labour market and 4.7% earnings growth is not condusive to a low inflation environment.

rizla01

I think that there would be a problem in allowing rates to rise too high as this will effect any future decisions to join the Eu.

Every Cloud...??

cloud_dog

A lot of comment regarding the 1.9% number is that it is a bit of a spike and may not be reflective of the general trend.

In addition to this the BoE review lots of stats over the longer term and may see the beginnings of house price increase slowdown and the slowdown in high street spending as reasons to leave unchange (at least for a while longer). The general consensus is that there is probably going to be another rise at some point with a growing band on commentators thinking that rates may have reached there highs.

I don't think the 1.9% figure will cause a knee jerk reaction at the BoE, last vote was 7 to 2 to leave unchanged; its likely that the vote will be alot closer this time but is it significant to cause a majority swing? Who knows - certainly not me :-)

cloud_dog

Reaper

Much of the rise is due to oil prices which are outside government control, and raising interest rates would not help.

I'm still a bit mystifyied by the BOE view that there may be one last interest rate rise. It doesn't seem to make economic sense.

Kennys1

So lets start spread betting, you can help if you know.