How much longer will this bear market go on for?

sevenhills

InvesterJones said:

Below inflation pay rises of course reduces people's spending power - that's actually a good thing economically speaking when inflation is high. The temporary hit to the economy is necessary pain in order to get inflation on track.

When the BoE changes interest rates, they keep things slow, usually 0.25 increases.
With inflation forecast to be 13% and high for a few years, I would suggest a 2% below inflation should be the ideal, not a massive shock to the economy.

sevenhills

Linton said:

The political aspect is in deciding what one does about it.

It's difficult to argue for pensions to keep pace with inflation, whilst saying pay rises are inflationary 

InvesterJones

sevenhills said:

InvesterJones said:

Below inflation pay rises of course reduces people's spending power - that's actually a good thing economically speaking when inflation is high. The temporary hit to the economy is necessary pain in order to get inflation on track.

When the BoE changes interest rates, they keep things slow, usually 0.25 increases.
With inflation forecast to be 13% and high for a few years, I would suggest a 2% below inflation should be the ideal, not a massive shock to the economy.

That would be far from ideal - it would directly cause high inflation for at least six or so years, which would be worse for the economy and living standards than a shorter period of pain.

sevenhills said:

Linton said:

The political aspect is in deciding what one does about it.

It's difficult to argue for pensions to keep pace with inflation, whilst saying pay rises are inflationary 

Agreed for the most part, however there is an argument that some pensioners have no means to adjust their lifestyle/employment etc. I would argue the same applies for many of those relying on welfare but then we are getting political and into a wider discussion of whether it's worth giving a few people more than they need in order to make sure that others who do need it don't miss out, or whether you allow some to go without when they need it in order to make sure others don't benefit more than intended.. With regards to groups like pensioners and claimants the group that goes and votes is likely to be the one getting the most benefit..

sevenhills

InvesterJones said:

That would be far from ideal - it would directly cause high inflation for at least six or so years, which would be worse for the economy and living standards than a shorter period of pain.

Our inflation was not caused by wage increases. A short but severe drop in living standards will cause mortgage defaults and bussineses to go bust.

Prism

sevenhills said:

InvesterJones said:

That would be far from ideal - it would directly cause high inflation for at least six or so years, which would be worse for the economy and living standards than a shorter period of pain.

Our inflation was not caused by wage increases. A short but severe drop in living standards will cause mortgage defaults and bussineses to go bust.

Which, if we ignore the human side of it, is probably the natural thing to do. Over the long term having cycles of mortgage defaults and company failures is completely normal. A few years of pay rises will simply put it off for a bit.

Linton

sevenhills said:

InvesterJones said:

That would be far from ideal - it would directly cause high inflation for at least six or so years, which would be worse for the economy and living standards than a shorter period of pain.

Our inflation was not caused by wage increases. A short but severe drop in living standards will cause mortgage defaults and bussineses to go bust.

True, the infltion was caused by one-off external events and presumably the effects will decline over time.  By increasing wages in line with inflation there is the very real risk of an internal inflationary spiral with higher wages leading to higher prices leading to further rises in wages ad infinitum.  

If fuel prices return to normal will the workers accept a reduction in their wages?

InvesterJones

sevenhills said:

InvesterJones said:

That would be far from ideal - it would directly cause high inflation for at least six or so years, which would be worse for the economy and living standards than a shorter period of pain.

Our inflation was not caused by wage increases. A short but severe drop in living standards will cause mortgage defaults and bussineses to go bust.

Given inflation wasn't caused by wage increases it would seem foolish to add even more inflation caused by wage increases on top of it. Yes, defaults happen in economic down turns, but if the BoE had to increase rates even more, for longer, there would be more.

Linton

sevenhills said:

Linton said:

The political aspect is in deciding what one does about it.

It's difficult to argue for pensions to keep pace with inflation, whilst saying pay rises are inflationary 

I think the current situation shows up a lot more problems than that.  For example in my view a key question is why should people living off pensions and/or investments be taxed (including NI) at lower rates than those living off earnings? 

I think it  is reasonable for state pensions to increase with inflation, otherwise the effect will compound over the years such that future generations of pensioners will receive state pensions that are insufficient to cover the basics of life.  We would return to the situation in the 1970/80s when every winter there were frequent press headlines about pensioners dying because of inadequate food and/or lack of heating.

The state pension is only set to cover the very basics - it is for example about half what someone working full time on the minimum wage would receive.  So State Pension really is equivalent to benefits which are rising with inflation.

People with inflation linked employer or personal pensions either paid for them or receive them under their contracts of employment.  I cant see any government forcing thousands of companies to break their contracts with millions of people. Many employer inflation linked pensions are capped, some as low as 2%.

Millyonare

Know someone on £25k salary who has just cut their "personal inflation" rate by a huge -30%. Shop at Aldi not Waitrose, drive a Citroën not a Merc, walk not drive, etc. It is very possible for many to ruthlessly cut costs and "beat" inflation. Make your money go further.

InvesterJones

Millyonare said:

Know someone on £25k salary who has just cut their "personal inflation" rate by a huge -30%. Shop at Aldi not Waitrose, drive a Citroën not a Merc, walk not drive, etc. It is very possible for many to ruthlessly cut costs and "beat" inflation. Make your money go further.

But equally, for many it's not, and their inflation is far higher than the official rate.