Is inflation becoming sticky?

SouthCoastBoy

I always thought inflation above 5% would be around for a while, I have planned for it stay above 5% until 2027 and not get back to 2.5% for another 10 years. Inflation could stay higher longer if benefits and DB pension increases continue to stay linked to CPI/RPI, as this cohort will be consuming but not producing which will push prices higher, as they have had no material impact on their propensity to spend. Will be interesting what happens if Labour get elected next year.

RogerPensionGuy

The link below is a well presented one and worthy of a read.

I think I saw on Sky yesterday the prime minister was just reconfirming the increasing of interest rates will be slower to act than it did decades ago due in part to fixed mortgage deals.

I think we all just need to consider that the1% interest came and stayed too long and now we will be probably staying at or near the UK average bank rate of the last 300 years of 5%
.

https://www.hl.co.uk/news/articles/uk-interest-rates-whats-next-and-are-they-high-enough-to-cool-inflation

m_c_s

Looking at the recent producer price inflation charts goods inflation should plummet over the next 6 months (assuming outlets don't gouge themselves by keeping prices high to make more profits). Services inflation though has picked up and could somewhat offset some of the drop in goods inflation. 
It may well be that the only solution is a recession and raising then keeping BOE rates at 5.5% for a year or 18 months will probably induce one. If the BOE raise over 5.5% (I personally think they won't) then a deeper recession could be the result next year and that will certainly drive inflation down but with lots of pain with job losses, house repossessions etc. Let's hope that is not required.
I am optimistic that inflation could be around 5% (still high but showing a clear downward trend) by December and BOE rates don't go above 5.25%. So I hope that only one more hike by the BOE is needed and then they will play a waiting game for 3 to 6 months to see how things develop in the economy up to December. 

RogerPensionGuy

Two price rises I noticed yesterday. 

Macdonalds large coffee now £1.69 it was £1.59 last week and £1.29 earlier in the year.

Pret coffee yesterday was £3.20 it was £3.00 last week and think it was £2.75ish in April just gone.

I guess businesses will be getting in a few little upwards tweaks on prices in this period before the economic brakes are felt by many and we become more selective with our spending habits. 

Albermarle

The boss of AO ( Appliances Online) was on Radio 4 this morning. He said prices were now stable for domestic appliances, partly due to an unclogging of supply chains and global shipping costs have fallen back sharply. Other goods will be similarly affected.

On the other hand I also heard that shortage of labour in the UK is inevitably continuing to push up wage costs.

So many competing factors.

Albermarle

Nebulous2 said:

Albermarle said:

I've been gathering my own anecdotal evidence about pubs, restaurants and leisure activities bursting at the seams, despite greatly increased costs.

Also despite holidays in Greece, Spain etc being apparently 20/25% more expensive, there are so many holiday flights that air traffic control is struggling to cope.

Something has to crack somewhere at some point .

Yes - exactly. I've posted in the holiday forum about this. I've been to Tenerife twice in the last 18 months, and wanted to go back again in October / November. I've refused to pay what they are asking to go to the hotel I wanted and wont be going. 

There is increasing evidence that companies are using inflation to build profits, as many members of the public suspected, but it will continue as long as people are willing to pay it. 

Yes, I had a holiday in Greece not long ago. Very nice but the total bill was a bit daunting when I added it all up at the end ( OK could have done it cheaper but YOLO). The flights were definitely more expensive than last year.  Due to that a second similar holiday later this year is off the agenda, and having a shorter staycation instead.

westv

At least the BREXIT "bonus" is keeping things in check. LOL!!!

sevenhills

SouthCoastBoy said:

 DB pension increases continue to stay linked to CPI/RPI

Surely inflation linked pay rises are neutral, CPI inflation seems to be below the real inflation rate.

SouthCoastBoy

sevenhills said:

SouthCoastBoy said:

 DB pension increases continue to stay linked to CPI/RPI

Surely inflation linked pay rises are neutral, CPI inflation seems to be below the real inflation rate.

The problem is workers are generally getting below inflation pay rises, however benefit claimants and pensioners are getting inflation pay rises, so the people that are producing are falling behind the benefit claimants and pensioners, so the people not producing can afford to consume more, and the producers have to consume less. It's the wrong way round, and encourages people to leave the work force, which is why firms are struggling to recruit people. There are plenty of people of working age not working, as it is not in their interests to work.

Benefits are a big issue, it should be a last resort, not a lifestyle choice, working has to pay otherwise as an economy we do not grow, hence the productivity problem we have. The govt are trying to resolve it by immigration however this is not the answer as it means we still have too many non producing and the additional strain on infrastructure (e.g. housing, NHS etc.).

Thumbs_Up

westv said:

At least the BREXIT "bonus" is keeping things in check. LOL!!!

You wont be laughing IF London loses it’s pre-eminence in global finance. Probably the phrase “my house is worth” will be banished from the British idiom for ever more.