Eurozone Inflation

HAMISH_MCTAVISH

grizzly1911 wrote: »

Best get stoking the HPI model then instead.

What is it with you people and your irrational hatred of HPI?

Houses, like any other asset class, are an important part of the economy.

Not all of the economy, of course, as some 85% or so has nothing to do with housing.

But it's just as bizarre to think you could have a healthy wider economy without a healthy housing market, as it is to think that a healthy housing market would be sufficient for the UK without also having a healthy wider economy.

Housing, and associated services, quite rightly account for between 15% and 20% of GDP in most developed economies.

It is absolutely bonkers to think the wider economy could remain healthy whilst having a house price crash.

Or that GDP could grow meaningfully or sustainably while 15% to 20% of the economy remained crippled thanks to mortgage rationing.

ILW

HAMISH_MCTAVISH wrote: »

What is it with you people and your irrational hatred of HPI?

Houses, like any other asset class, are an important part of the economy.

Not all of the economy, of course, as some 85% or so has nothing to do with housing.

But it's just as bizarre to think you could have a healthy wider economy without a healthy housing market, as it is to think that a healthy housing market would be sufficient for the UK without also having a healthy wider economy.

Housing, and associated services, quite rightly account for between 15% and 20% of GDP in most developed economies.

It is absolutely bonkers to think the wider economy could remain healthy whilst having a house price crash.

Or that GDP could grow meaningfully or sustainably while 15% to 20% of the economy remained crippled thanks to mortgage rationing.

Do these economies also believe that house prices just keeping pace with inflation is a failing market?

HAMISH_MCTAVISH

ILW wrote: »

Do these economies also believe that house prices just keeping pace with inflation is a failing market?

A failing market is one where we have to keep house prices artificially restrained by preventing a million or more people from buying through mortgage rationing.

And the consequences of that are clear to see.

The worst housing shortage in generations, record high rents, and 7 years of depressed GDP.

ManAtHome

HAMISH_MCTAVISH wrote: »

But then the stronger pound would reduce exports, weakening the economy.

Really - see here http://fullfact.org/factchecks/balance_of_payments_trade_deficit-29027

And a bit of a quote

Sure enough, the Shadow Business Secretary alludes to a relevant issue. The UK's balance of payments deficit of £59 billion in 2012 is the highest monetary deficit on record, but a more relevant historical comparison puts this in terms of GDP.
From this we're left in no doubt that the balance tilted to the biggest deficit since the 1980s in 2012:

Generali

Graham_Devon wrote: »

Joining in then?

Thought this sort of stuff would be below yourself, but clearly not.

I'm not sure what that means.

You seem to have a view that CPI of > 2% is a failure on the part of the BoE and should result in higher interest rates. To describe that as 'The Devonian School of Economics' seems perfectly reasonable to me. I don't use it as an insult although I recognise that some others do.

If you can explain why what I said is A Bad Thing then I'll happily apologise but at the moment I don't see a problem.

purch

grizzly1911 wrote: »

Would raising ineterest rates strengthen the pound therefore reducing imported inflation?

Probably in the short term, but there has rarely been an example of a sovereign state successfully using interest rates to control their currency value over any extended term.

If we raise rates, and GBP rises slightly, but inflation doesn't fall by much, the likely result in the longer term will be a much weaker currency and probably a further damaged economy, and we will be left with higher interest rates than we need, and no further scope to usefully change them.

chucky

ILW wrote: »

Just heard on the radio that Eurozone inflation is currently running at 0.7%.

We are forever being told that our inflation at around 4 times that is mainly imported and BoE have no control over it.

Do the Eurozone import nothing or are we being fed a load of cobblers?

Some posters still don't understand the concepts of inflation, inflation basket of goods and currency rates.

grizzly1911

purch wrote: »

Probably in the short term, but there has rarely been an example of a sovereign state successfully using interest rates to control their currency value over any extended term.

If we raise rates, and GBP rises slightly, but inflation doesn't fall by much, the likely result in the longer term will be a much weaker currency and probably a further damaged economy, and we will be left with higher interest rates than we need, and no further scope to usefully change them.

So we are left with rates lower than we need them a bit like a broken brake pedal or even worse an accelerator that is stuck on open.

The only thing they (rate increase) may slow is house building.

With a push to lower and lower wage rates for the majority interesting times ahead as inflation is outside of government control.

Nice to know we have so few options.

CLAPTON

of course Germany experienced real wage reduction over most of the last 10-15 years

it is nevertheless generally praised as the right way to regain competitiveness and national prosperity

Thrugelmir

grizzly1911 wrote: »

The only thing they (rate increase) may slow is house building.

Will also slow GDP. Consumer spend accounts for a high proportion of UK activity. So a catch 22 situation. Over burdened with debt and a slowly recovering economy, with an unsustainable trade deficit. Not an easy set of circumstances to address. With rebalancing of the economy going to take a long long time.