What should the inflation target be?

posh*spice

Gorgeous_George wrote: »

Gordie's last throw of the dice will be to revise the inflation target that the Bank of England aims to control with interest rates.

What will the target be next month (16 June 2008)?

GG

Hi Don't claim to be an expert on any of this but I'd like the BOE to keep interest rates at a rate that keeps oil as cheap as possible for Brits. I believe that moving interest rates in a way that makes oil even more expensive will be the most damaging to GB plc.

ManAtHome

Hmmm, yes we've been here before - abandon RPIX because it's going up so instead of things flattening out from 2004 on, we had a load more "let the binge continue"... That was an extremely good move wasn't it - I know memories are always a couple of years shorter than economic cycles, but isn't this getting a bit ridiculous?

posh*spice

Jennifer_Jane wrote: »

I'm a great fan of yours, GG, and clicked on the link specifically because I saw you had posted.

I like GG too - should we start a fan club;):rotfl:

globalds

posh*spice wrote: »

Hi Don't claim to be an expert on any of this but I'd like the BOE to keep interest rates at a rate that keeps oil as cheap as possible for Brits. I believe that moving interest rates in away that makes oil even more expensive will be the most damaging to GB plc.

I can't really see how interest rates can be used to change the price of oil or fuel .
2 choices really .
Lower taxation on fuel .
try and make the pound more valuable .
Maybe interest rates could be used to affect the pounds value ..cheap oil at the price of even higher mortgages ...Not a recipe for success .
my interpretation is that we are in a commodity bubble ..There is no great shortages of oil or rice or wheat ,etc. Just lots of people trying to make out of rising prices .
High inflation is a very good tool for equalising a nations wealth ..the rich get poorer much faster than the not so rich .

cells

globalds wrote: »

High inflation is a very good tool for equalising a nations wealth ..the rich get poorer much faster than the not so rich .

this is a v.ignornat comment

the rich will hold most of their wealth in stocks/commodities/assets/business which will go up in price with inflation. hence inflation helps the rich

the poor have no savings and no fixed income so it doesnt really harm or benifit them

the middle class, lower and upper, that hold CASH will be desimated. their cash will be "inflated" and be worth-less than the previous year



inflating your way out of a problem doesnt "rebalance" wealth, it transfers it from the middleclass to the rich.

the target for inflation should be 0%, why anything more!
if it where, then we would have interest rates probably closer to 10%.
the CPI basket should include EVERYTHING we use/buy in the porportions we use and buy them including homes. there should also be a CPI "basket" for the rich/middle/poor as im sure they vary greatly!

olly300

Gorgeous_George wrote: »

Gordie's last throw of the dice will be to revise the inflation target that the Bank of England aims to control with interest rates.

What will the target be next month (16 June 2008)?

GG

Just watching Newsnight and basically Mervlyn King says it's the end of the NICE (non-inflationary consistently expansionary) period.

Joseph Stiglitz basically says the Bank of England and government won't be able to keep to their inflation target as world events i.e. increase in oil prices, increase in food prices are not under their control and if they do keep to an arbitrary low inflation target they will strangle the rest of the economy. This would make a recession worse then it would be. The only thing they can do is change the measurement of inflation.

ManAtHome

My view is that we're stuffed either way - interest rates too low too long is why we're where we are.

How to get out of it... 'normal' way would be tax cuts, but broon-troosers has spent all the 'good times' dosh, so that ain't gonna happen (although he's obviously thinking down the "well I won't be here much longer than a couple of years". so could be a final consolidation loan splurge - and we know where that ends up...).

Drop interest rates..? increases inflation, 100% of joe public is poorer, no spends in the shops, contraction, unemployment etc etc. Quid drops further, oil, food etc goes up...

Increase interst rates - possibly a better chance, not everyone is up to their ears in debt, maybe the savers will spend more rather thn locking it away in fixed-rates before interest rates drop? Also quid goes up, imports are cheaper, joe public doesn't have to cough up as much for oil, food etc...

Tricky choice.

WTF?_2

ManAtHome wrote: »

My view is that we're stuffed either way - interest rates too low too long is why we're where we are.

How to get out of it... 'normal' way would be tax cuts, but broon-troosers has spent all the 'good times' dosh, so that ain't gonna happen (although he's obviously thinking down the "well I won't be here much longer than a couple of years". so could be a final consolidation loan splurge - and we know where that ends up...).

Drop interest rates..? increases inflation, 100% of joe public is poorer, no spends in the shops, contraction, unemployment etc etc. Quid drops further, oil, food etc goes up...

Increase interst rates - possibly a better chance, not everyone is up to their ears in debt, maybe the savers will spend more rather thn locking it away in fixed-rates before interest rates drop? Also quid goes up, imports are cheaper, joe public doesn't have to cough up as much for oil, food etc...

Tricky choice.

It's only now that the absolute mis-management of the economy under Gordon Brown over the last decade is going to show through.

As you say, the government should be able to open the public spending purse now as well as give tax cuts to stimulate economic activity. However, during the good times they've been borrowing ever more money and are now running near-record public sector deficits. There's nothing in the purse to give away. They also kept interest rates too low for too long and now don't have much space to play with as the pound is in a precipitous position.

As tax takes fall they'll have to fall back even more on borrowing. But here's the rub - this means they have to sell government bonds on the international finance markets. With inflationary pressures very much to the upside anyone looking to buy bonds will want a good rate of interest. So much for cutting interest rates, eh?

The bond market is going to force Central Bank interest rates up no matter how much Gordo wants them to go lower to bail out the house market and banks.

globalds

!!!!!!? wrote: »

It's only now that the absolute mis-management of the economy under Gordon Brown over the last decade is going to show through.

I am not trying to defend mismanagement ..And I presume after ten years in power labour is filled to the gunwales with administrators rather than leaders ..Poor old Gordon is testament to that .
But if we look back ten years ,it was still the intention that the UK would be either running in parity with the Euro zone or even have been absorbed .
The UK public did not want this and most of the resulting decisions have really been more like compromises that would keep doors open .Compromises will allow you to muddle through ..Which is what we are/have been doing ...They aren't going to bring great returns ...the returns have all been hedged .
Maybe this is what we are ready for ..A political decision that would take us off the Euro Fence ..Falling either side will eventually be less painful than sitting on a fence with a leg either side .
There are more global waves ready to wash upon our shores ..One of the least discussed is the re-valuation of Chinas currency http://afp.google.com/article/ALeqM5gYNyW0LSjKIo0o8YWvIosww9EfXw ..A thing that is long overdue and that will add another few percent to global inflation figures .