Why hasn't QE caused inflation?

In_For_A_Penny_2

Question is in the title. . . any thoughts? I'm still puzzled by it.

Looks like Europe is having to deal with deflationary pressures and there seems to be an increasing movement to introducing quantitative easing in the Eurozone to try and head this off.

With all that extra "money" in our economy why hasn't it resulted in inflationary pressures in the UK? I understand how it has boosted the equities markets but surely some of that will have found its way into the wider economy?

Or perhaps it yet will when QE is withdrawn?

Mark Carney is at pains to point out the slow/measured rise in interest rates but this assumes inflation stays low - so this is relevant to most of us!

Bubble_and_Squeak

In_For_A_Penny wrote: »

Question is in the title. . . any thoughts? I'm still puzzled by it.

Looks like Europe is having to deal with deflationary pressures and there seems to be an increasing movement to introducing quantitative easing in the Eurozone to try and head this off.

With all that extra "money" in our economy why hasn't it resulted in inflationary pressures in the UK? I understand how it has boosted the equities markets but surely some of that will have found its way into the wider economy?

Or perhaps it yet will when QE is withdrawn?

Mark Carney is at pains to point out the slow/measured rise in interest rates but this assumes inflation stays low - so this is relevant to most of us!

good question
when they first started the QE experiment i though "oh no! good bye savings!"
but low inflation persists
however, look at the price of houses!
and stock markets seem to be riding high on the back of nothing

vian22

i think it will happen... after sometime

Masomnia

It might have been lower still or deflation without it.

theEnd

For now, they're barely plugging the hole caused by a huge debt deflation.

But they're replacing broad money, with narrow, so eventually, with a recovery, there will be high inflation.

They're desperate for inflation. Any talk of rate rises is rubbish. They'll wait as late as possible.

Graham_Devon

It might have caused inflation. We will never know.

We could have been well into deflation territory without it.

IronWolf

Because the money supply added has not all come through into the economy. At the same time as QE you have increased regulation on the banks requiring them to have much higher reserves. So any cash they raise through QE stays with them and boosts their capital ratios.

The effective money supply is quite different to "physical" money supply because of how fractional reserve banking works, so it is quite possible to have high inflation or low inflation that goes contrary to the changes in 'physical' money supply.

Thrugelmir

QE appears merely provided the liquidity to keep the financial system stable. While financial institutions restructure their balance sheets. In effect deleverage. RBS is already a third of the size it was at the peak in 2008. With yet more contraction to happen.

The Western world is struggling to fund the services and benefits it has created for itself. While trying to reduce the enormous public sector debt burden accumulated.

Without the benefit of £25 billion of PPI compensation the UK economy may well be in the same place as Europe now. Rebalancing the economy is still a distant dream. Simply hasn't happened. Nor addressing the consumer debt pile that exists. The UK has an obsession with investing in property that produces no real wealth or jobs. There needs to be a real change of focus to banks lending for investment in plant and machinery. We don't need more money in circulation. Just a redirection of resources with a change of culture.

In_For_A_Penny_2

Thrugelmir wrote: »

The UK has an obsession with investing in property that produces no real wealth or jobs. There needs to be a real change of focus to banks lending for investment in plant and machinery. We don't need more money in circulation. Just a redirection of resources with a change of culture.

Agree - as a relative novice looking to understand all this better - the UK economy in particular seems dysfunctional. It seems a missed opportunity to achieve some real and sustainable growth in industry and other sectors.

House price inflation despite low building levels would appear to be counter productive - a bit more money to solicitors, EA's and a select few landlords but probably bad for the overall economy in the absence of real growth and wage inflation.

In_For_A_Penny_2

Masomnia wrote: »

It might have been lower still or deflation without it.

True - I guess we may get some indication of its true effect whenever it is withdrawn, particularly if the economy is fundamentally unchanged.

Loughton_Monkey

Printing money would normally cause a direct 'hit' on the value of our currency - thus making imports more expensive and causing a bit of inflation.

Since a large part of our imports are from countries that have printed as much as we have, it has negated a lot of the effect.

Besides. Any extra money has not shown up in the pockets of the 'hard working family' as wage restraint has kept incomes static.

The boy Carney should, in my view, print a bit more and send it directly to the treasury to pay off some of the debt. Gideon could then afford to throw huge tax breaks to us 'boomer retirees' as a compensation for the miserable savings rates we get on our hard-earned.

.... large gin & tonics all round....