Inflation getting out of control

CLAPTON

van_persie wrote: »

Absolutely correct.
REAL inflation is far greater than even the RPI figures - if only the benign population of this country understood what fiddled inflation figures are doing to them in real terms (eroding their savings and diminishing spending power), they might think twice before baying for lower interest rates in the hope of lowering the mortgages on their vastly over-priced houses...

I'm a little curious about this.

If 'real ' inflation is much higher than the RPI figures then its also a lot higher than wage rises.

This should mean that people are cutting back on holidays, clothes etc.. while there is some evidence of this it doesn't really seem to be filtering though to unemployment.... we will have to wait and see what happens.

The OECD projection for growth in the UK , although lower than Gordon's still show it to be positive.

Kez100

I'm no expert but I'd be interested in hearing from those that are. Is inflation actually controllable in this case by interest rates? It seems to me that the best way to control it is by reducing tax.

I say that because all the inflationary items are either essential (food and house fuel) - which higher interest rates won't help as we have to buy these things anyway. Or made worse by taxes - like motor fuel (what, 70% of which is tax?) or council tax (100% tax).

BenL

If interest rates do rise to the 10% muted above would the banks increase their rates?

Would the LIBOR rate shoot up making the funding for banks more expensive or would they use the BoE rate increase to increase margins further?

Errata

Just remember, inflation = stuff costs more = more vat for Gordon !

van_persie

CLAPTON wrote: »

I'm a little curious about this.

If 'real ' inflation is much higher than the RPI figures then its also a lot higher than wage rises.

This should mean that people are cutting back on holidays, clothes etc.. while there is some evidence of this it doesn't really seem to be filtering though to unemployment.... we will have to wait and see what happens.

The OECD projection for growth in the UK , although lower than Gordon's still show it to be positive.

I'd guess that 'real' inflation is around 7% p.a.
The reason we've been able to keep spending is simply cheap credit.
Sadly, the illusion of wealth and 'buy now, pay later' culture that has taken a hold of the UK during the Brown/Blair 'boom' years has encouraged people to borrow more so they can keep taking those holidays, etc.
But it's starting to bite, now.
And as we have greater household debt than almost any other country in the world and a far larger housing bubble than the USA, I fully expect a recession to shake out the system. Every capitalist economy 'needs' one. It's just unfortunate that ours couldn't have been managed better. They slammed the throttle on full and made the plane climb higher when the best thing would have been to attempt a crash landing (rate cut, August 2005). Now we're at 35,000 ft and falling fast...

granville_2

BobProperty wrote: »

So, at what point do we adopt the Euro then?

when it has reached parity with the pound? a distinct possibility me thinks...