Why aren't interest rates going up?

jimjames

metrobus wrote: »

Who actually believes the inflation rate is 2%?

Cheapest duel fuel bill for a average user is up 20% from last year
Petrol up 20% Council tax 5%,most insurances up 7.5%, Beer in pubs up around 10%, Food
prices forever increasing,even something like sending a letter has gone up 7%.

It is 2% measured by the CPI rate. That doesn't mean it applies to every single item or that different measures of inflation aren't different numbers. If your dual fuel bill has gone up 20% then you need to look at alternative suppliers as I'm not aware of ones that have gone up so much. My insurance is less than last year and other items dropping. I need to get a new mower. Cheapest one is now just over £100 compared to £200 last time I bought so not everything is going up.

moneyfoolish

metrobus wrote: »

The rate is manipulated to stop the government having to pay inflation linked benefits eg old age
pension at the true rate.

Which is exactly why CPI was invented in the first place. No doubt when they think that is getting to high, they'll invent yet another xPI to produce an even lower rate!

seacaitch

moneyfoolish wrote: »

Which is exactly why CPI was invented in the first place. No doubt when they think that is getting to high, they'll invent yet another xPI to produce an even lower rate!

Funny you should mention that...

In March, the ONS moves to CPIH as its preferred "headline" measure of inflation. Currently, the CPIH (2%) measure is a touch above the CPI (1.8%) measure.

However, later in the year when the CPI measure is expected to move above 3%, CPIH is likely to be lower than CPI because owner-occupiers’ housing costs (as measured using the rental equivalence method), which are included in CPIH, are rising at a rate lower than 3%.

Following the ONS's switch to CPIH, it'd be no surprise to see (ie. expect to see!) Hammond also change the BoE's MPC remit to target CPIH instead of CPI. As explained above, come this summer when CPI is >3% CPIH should be lower, possibly by quite a bit, meaning the BoE will have less reason to raise rates than it would have done if its remit had been to keep targeting CPI.

Over the years ahead, expect every possible reason to be trotted out in order to limit any rate increases by the BoE to the absolute minimum, preferably none, particularly while Carney remains around. Post-GFC the inflation targeting policy is highly asymmetric: every period of inflation above target is looked through, every period below is a reason to consider looser policy. If savers haven't twigged this yet after 8 years then they must have been asleep!

Terry98

......and RPI is usually at least 1 per cent higher than CPI. Talk about legally fiddling the books!

Glen_Clark

The Government will never raise rates of its own volition because it has become hooked on debt like a junkie on heroin, Carney was hired by Osborne to do what he did in Canada and push up house prices. They will default on their debts through inflation, which doesn't matter to them personally because their assets are in property and their pensions index linked.

Glen_Clark

Reaper wrote: »

Yes, although I was suspicious of it as the definition of what the minimum should be was obtained by a survey asking members of the public what it should be.

Equally dodgy are the regular reports saying how many are living below the "poverty line", which is defined as 60% of median household income. As such even if everybody in the country were to start earning millions there would still be lots of people in poverty by that definition.

These "relative poverty" definitions looks weak to me when much the the world has genuine poverty with populations struggling to avoid malnutrition.

Actually hospital admissions for malnutrition in England are at a record high too. I don't think you can judge it just on income. For over 30 years the Government has been reducing income tax and replacing it with stealth taxes which quietly push up the cost of living. Then there is housing costs which push even high earners into poverty.
I remember an Indian guy saying India has poverty too, but its easier to be poor in India than in England. In India they are allowed to build shanty towns where there is a real community spirit amongst the poor. Wheras in Britain the poor are often forced to live on the streets. Hospital admissions for hypothermia are at a record high too - wheras India is a warm country. .

Thrugelmir

coyrls wrote: »

I thought it was pretty much accepted that the Brexit vote caused a devaluation of sterling

Sterling was overvalued. Brexit was simply the trigger that brought the matter into focus.

Ashen

Thrugelmir wrote: »

Sterling was overvalued. Brexit was simply the trigger that brought the matter into focus.

It's quite amazing how Brexit was a trigger that brought pre-Brexit overvaluation into focus instantly, but apparently had no impact itself on the value of sterling.

Isn't it fun making stuff up!

ThinkingOutLoud_2

melbury wrote: »

It was during the 1990's - think base rate at one stage was way over 10%.

Here is inflation vs interest rates visually since year dot....well almost - http://www.economicshelp.org/wp-content/uploads/blog-uploads/2012/01/inflation-interest-rates-1900-2011.png

Apodemus

ThinkingOutLoud wrote: »

Here is inflation vs interest rates visually since year dot....well almost - http://www.economicshelp.org/wp-content/uploads/blog-uploads/2012/01/inflation-interest-rates-1900-2011.png

Interesting! While I remember mortgage rates soaring amid the ERM debacle, I don't remember what my bank was giving as interest on savings at that time. Do you know of a similar graph to show actual standard rates rather than BoE rate?

But it shows why in the mid-80s it was well worth me buying on credit card, paying the sum due into a savings account and paying my card off on the last possible day, in a way that would simply not be worth the hassle nowadays!