is my employer being unreasonable?

Bantex_2

Southend1 wrote: »

Imagine an economy where there is only one product on sale, say bread. There are two companies supplying bread. Company A and company B both sell bread for £1 per loaf in 2012. In 2013 company B decides to increase the price of a loaf to £1.10. Company B sees that it can raise the price of their product too but want to gain market share so increase the price of their loaf to £1.05. The rate of inflation in that economy is therefore 7.5%, which is a direct result of companies increasing the price of their product and raising the general price level in the economy.

Of course there are other factors at play in the real world, e.g. Money supply, interest rates, elasticity of demand etc. nevertheless there is a direct link between the price of goods, company revenues and inflation.

What you are not allowing for is company C that comes into the market with a new better type of bread that costs half as much to produce and takes 50% of the market. Companies A and B lose half their revenue.
This is the real world when you have companies like Amazon etc to compete with. Just look a places like Comet, Jessops and many of the book suppliers.

sniggings

Southend1 wrote: »

The Bank of England is controlled by the government.

Logically, the bank should have raised interest rates a long time ago to curb above target inflation, however it keeps them low because the government needs to inflate away excess debt.

no it's independent that's the whole point.

Southend1

Bantex wrote: »

What you are not allowing for is company C that comes into the market with a new better type of bread that costs half as much to produce and takes 50% of the market. Companies A and B lose half their revenue.
This is the real world when you have companies like Amazon etc to compete with. Just look a places like Comet, Jessops and many of the book suppliers.

Yes it was a simplification, but a simplification which demonstrates the influence of firms on inflation.

Yes there have been reductions in the real cost of electronics, white goods etc, but there have been increases in other areas e.g. Food, energy, housing etc. As I said, some prices go up, some go down but that doesn't mean companies setting prices doesn't impact inflation.

Southend1

sniggings wrote: »

no it's independent that's the whole point.

Then why is it not using the means at its disposal to reduce inflation to the target level?

sniggings

HHarry wrote: »

The 'target' figure for inflation is 2%, so we aren't running at unnaturally low inflation rates.

are you serious :eek: interest rates are at an all time low only to keep inflation down, the BoE is keeping them low because it knows that if interest rates were to raise, many people will not be able to afford their mortgages so are keeping them low, mortgage and rents etc are a measure of inflation, once interest rates go back to their normal levels in the very near future, inflation will also shoot up.

Bantex_2

Southend1 wrote: »

Yes it was a simplification, but a simplification which demonstrates the influence of firms on inflation.

Yes there have been reductions in the real cost of electronics, white goods etc, but there have been increases in other areas e.g. Food, energy, housing etc. As I said, some prices go up, some go down but that doesn't mean companies setting prices doesn't impact inflation.

That is totally different to your earlier point when you said that companies revenues were directly linked to inflation which means they could automaticaly afford at least inflation pay rises.
Apart from there being no direct link between inflation and revenue in any particular company, there is also no direct link between revenues and gross profits.

Southend1

sniggings wrote: »

are you serious :eek: interest rates are at an all time low only to keep inflation down, the BoE is keeping them low because it knows that if interest rates were to raise, many people will not be able to afford their mortgages so are keeping them low, mortgage and rents etc are a measure of inflation, once interest rates go back to their normal levels in the very near future, inflation will also shoot up.

The boe remit is to target CPI inflation which doesn't include housing or mortgage costs.

Low interest rates do the opposite of keeping inflation down.

sniggings

Southend1 wrote: »

Then why is it not using the means at its disposal to reduce inflation to the target level?

it's "means" as you say is only setting one measure of inflation, which is interest rates which affect mortgages, it does not have any other ways, well apart from printing more money but there is a limit to how much they can print and as they are not printing any more I guess they are at that limited, they do not have much/any control of the rest of the measures of inflation, such as fuel costs, wages, product cost, demand etc

Southend1

sniggings wrote: »

it's "means" as you say is only setting one measure of inflation, which is interest rates which affect mortgages, it does not have any other ways, well apart from printing more money but there is a limit to how much they can print and as they are not printing any more I guess they are at that limited, they do not have much/any control of the rest of the measures of inflation, such as fuel costs, wages, product cost, demand etc

Yes they can use the base rate as one tool. QE or money printing is another (though these aren't the only tools available). Why then is it that while inflation has been persistently above target have they bank been printing money and keeping interest rates low, which is exactly the opposite of what you would do if you wanted to reduce inflation?

sniggings

Southend1 wrote: »

The boe remit is to target CPI inflation which doesn't include housing or mortgage costs.

Low interest rates do the opposite of keeping inflation down.

depends which inflation figure to go by, if you accept inflation is a measure of the cost of living, then surely the RPI is the one to go by, as that does include mortgages and rents, interest rates are keeping those low, when they do go back to normal, the CRI will be even worse than it is now, the BoE has very little conrol on CRI, keeping interest rates low, means more money in peoples pockets, which helps keep inflation low.