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  • FIRST POST
    • Former MSE Helen
    • By Former MSE Helen 14th Feb 12, 9:09 AM
    • 2,324Posts
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    Former MSE Helen
    MSE News: Inflation dives as economy put on 'negative outlook'
    • #1
    • 14th Feb 12, 9:09 AM
    MSE News: Inflation dives as economy put on 'negative outlook' 14th Feb 12 at 9:09 AM
    This is the discussion thread for the following MSE News Story:

    "Hard-pressed families felt relief as official figures show the rate of inflation fell to its lowest level in two years ..."

    Read the full story:
    Inflation dives as economy put on 'negative outlook'



    This thread is not in the 'discuss house prices and economy board' as that is only open to those logged into the forum so anyone coming from the news story may not be able to see it.

Page 1
    • cepheus
    • By cepheus 14th Feb 12, 9:40 AM
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    cepheus
    • #2
    • 14th Feb 12, 9:40 AM
    • #2
    • 14th Feb 12, 9:40 AM
    And those who locked themselves into index linked savings plugged over the last few months will be worrying, although they were warned. If interest rates were to rise this wouldn't be too bad but I'm not holding my breath. I only hope the reduction in the price of mortgages doesn't spark of a boom in house prices again, tempting families into more debt on overpriced housing.
    • JimmyTheWig
    • By JimmyTheWig 14th Feb 12, 9:52 AM
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    JimmyTheWig
    • #3
    • 14th Feb 12, 9:52 AM
    • #3
    • 14th Feb 12, 9:52 AM
    I only hope the reduction in the price of mortgages doesn't spark of a boom in house prices again, tempting families into more debt on overpriced housing.
    Originally posted by cepheus
    I don't think that will happen until large mortgages become more readily available again.
    • JamesU
    • By JamesU 14th Feb 12, 10:02 AM
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    JamesU
    • #4
    • 14th Feb 12, 10:02 AM
    • #4
    • 14th Feb 12, 10:02 AM
    Found this stunning reasoning and analysis quite amusing ......

    "Inflation expectations tend to follow actual inflation and, given that the CPI appears to be heading sharply lower, we expect inflation expectations to do likewise," James Knightley from ING bank.

    http://www.bbc.co.uk/news/business-17025863

    JamesU
    • AirlieBird
    • By AirlieBird 14th Feb 12, 10:03 AM
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    AirlieBird
    • #5
    • 14th Feb 12, 10:03 AM
    • #5
    • 14th Feb 12, 10:03 AM
    The statistics released today are not "good news". As usual the media focus on the headline stats but digging down into the statistics reveals a more worrying story.

    The real story isn't that CPI fell heavily - that was to be expected with the VAT increase falling out of the calculations. No, the real story is that inflation ignoring taxation INCREASED by a huge 0.8 percentage points.

    EDIT: Oh, and can MSE staff please decide where to put inflation threads. Sometimes they are in here, sometimes they are in the Savings board, but never are they in the Economy Debate board - which seems to me the most logical place to put them.
    Last edited by AirlieBird; 14-02-2012 at 10:09 AM.
  • Freebeez
    • #6
    • 14th Feb 12, 11:37 AM
    • #6
    • 14th Feb 12, 11:37 AM
    "It's important to understand the rate of inflation dropping does NOT mean prices are dropping, it means prices are RISING less quickly"
    Pleased to see you're stressing this point. It really irritates me that all news coverage I see (whenever the rate of inflation falls) seems to be misleading, i.e. some spokesperson putting across the view that this means families will have more money in their pocket. That would only be true if salaries / wages had continued to rise in line with the rate of inflation. Whereas, I think it would be more accurate to say that most households have been affected by a decrease in income since the recession, through pay cuts, job losses, having to take on lower paid work etc.
    • cepheus
    • By cepheus 14th Feb 12, 12:04 PM
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    cepheus
    • #7
    • 14th Feb 12, 12:04 PM
    • #7
    • 14th Feb 12, 12:04 PM
    The statistics released today are not "good news". As usual the media focus on the headline stats but digging down into the statistics reveals a more worrying story.

    The real story isn't that CPI fell heavily - that was to be expected with the VAT increase falling out of the calculations. No, the real story is that inflation ignoring taxation INCREASED by a huge 0.8 percentage points.
    Originally posted by AirlieBird
    Interesting, where do you get the 0.8 from? Is there an index excluding VAT?
    • oldvicar
    • By oldvicar 14th Feb 12, 3:00 PM
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    oldvicar
    • #8
    • 14th Feb 12, 3:00 PM
    • #8
    • 14th Feb 12, 3:00 PM
    Found this stunning reasoning and analysis quite amusing ......

    "Inflation expectations tend to follow actual inflation and, given that the CPI appears to be heading sharply lower, we expect inflation expectations to do likewise," James Knightley from ING bank.

    http://www.bbc.co.uk/news/business-17025863

    JamesU
    Originally posted by JamesU
    That really is interesting. I find it entirely credible. At the same time if you read the Bank of England Inflation Reports, they talk about people's inflation expectations as being a PREDICTOR of actual inflation (if people expect big inflation they demand bigger pay rises etc).

    So here we have a virtuous or a vicious circle. A tipping point perhaps. If both are correct we are doomed to either a spiral of deflation, or runaway hyperinflation. You just can't win can you ... unless you've bought certain types of inflation linked savings which guarantee never to fall.

    <From the MSE artice>"It's important to understand the rate of inflation dropping does NOT mean prices are dropping, it means prices are RISING less quickly"
    Pleased to see you're stressing this point. It really irritates me that all news coverage I see (whenever the rate of inflation falls) seems to be misleading, i.e. some spokesperson putting across the view that this means families will have more money in their pocket. That would only be true if salaries / wages had continued to rise in line with the rate of inflation. Whereas, I think it would be more accurate to say that most households have been affected by a decrease in income since the recession, through pay cuts, job losses, having to take on lower paid work etc.
    Originally posted by Freebeez
    However. whilst this is normally true - that despite a fall in the headline annual %age change in inflation rate prices have increased year on year and also since the previous month's announcement, on this occasion ABSOLUTE PRICES REALLY HAVE FALLEN. Look at the detailed figures in the link below, and the index level of CPI and RPI have both FALLEN in January, back to where they were in October or November 2011, depending on you preferred measure. This is not just seasonal, they didn't fall back like this in recent years.

    Interesting, where do you get the 0.8 from? Is there an index excluding VAT?
    Originally posted by cepheus
    Yes there is - e.g. table 19 in the data published by ONS. http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/january-2012/cpi-and-rpi-detailed-reference-tables.xls - although I cannot see where AirlieBird gets the suggestion of a 0.8 percentage point increase from at all.
    Last edited by oldvicar; 14-02-2012 at 3:02 PM. Reason: spelling
    • cepheus
    • By cepheus 14th Feb 12, 3:08 PM
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    cepheus
    • #9
    • 14th Feb 12, 3:08 PM
    • #9
    • 14th Feb 12, 3:08 PM
    Yes there is - e.g. table 19 in the data published by ONS. http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/january-2012/cpi-and-rpi-detailed-reference-tables.xls - although I cannot see where AirlieBird gets the suggestion of a 0.8 percentage point increase from at all.
    Originally posted by oldvicar
    Thanks for this, the 0.8 comes from the difference between
    3.6 in January 2012 minus 2.8 in December 2011 (table 19b)

    The 2.8 in December seems to be a low blip or outlier though.
    Last edited by cepheus; 14-02-2012 at 3:10 PM.
    • poppy10
    • By poppy10 14th Feb 12, 4:32 PM
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    poppy10
    And those who locked themselves into index linked savings plugged over the last few months will be worrying.
    Originally posted by cepheus
    Hardly. Still would be earning 3.9% (plus a variable bonus) tax-free, whereas the highest paying savings account is only paying 3.2%, before tax. Plus inflation is likely to surge again as the BoE dumps more cash into the system.

    We've been here before, the MPC predicting deflation which never quite happened. Even if it does, the value of your investment is protected. Nothing to worry about here, I'm quids in.
    • Consumerist
    • By Consumerist 14th Feb 12, 4:58 PM
    • 5,198 Posts
    • 2,602 Thanks
    Consumerist
    And those who locked themselves into index linked savings plugged over the last few months will be worrying . . .
    Originally posted by cepheus
    Think I'll wait till the effect of all this Quantitative Easing works its way through the system over the next few years before I start worrying. I tend to be more worried about banks collapsing along with the Eurozone than I am about low inflation.
    Warning: In the kingdom of the blind, the one-eyed man is king.
  • pqrdef
    This is not just seasonal, they didn't fall back like this in recent years.
    Originally posted by oldvicar
    Recent years are no guide, we've had VAT increases two years in a row.

    To the extent that it's not seasonal, it's struggling retailers turning stock into cash to pay the rent.
    • AirlieBird
    • By AirlieBird 14th Feb 12, 9:03 PM
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    • 851 Thanks
    AirlieBird

    However. whilst this is normally true - that despite a fall in the headline annual %age change in inflation rate prices have increased year on year and also since the previous month's announcement, on this occasion ABSOLUTE PRICES REALLY HAVE FALLEN. Look at the detailed figures in the link below, and the index level of CPI and RPI have both FALLEN in January, back to where they were in October or November 2011, depending on you preferred measure. This is not just seasonal, they didn't fall back like this in recent years.
    Originally posted by oldvicar
    It is seasonal. It is very unusual for the incidies not to fall back in January compared with December.

    although I cannot see where AirlieBird gets the suggestion of a 0.8 percentage point increase from at all.
    Originally posted by oldvicar
    ONS commentary:

    In the year to January, the CPIY rose by 3.6 per cent, up from 2.8 per cent in December. The CPIY 12-month rate has therefore increased by 0.8 percentage points between December and January compared with a fall of 0.6 percentage points in the CPI 12-month rate between the same two months.
    • oldvicar
    • By oldvicar 15th Feb 12, 6:58 AM
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    oldvicar
    It is seasonal. It is very unusual for the incidies not to fall back in January compared with December.


    ONS commentary:


    In the year to January, the CPIY rose by 3.6 per cent, up from 2.8 per cent in December. The CPIY 12-month rate has therefore increased by 0.8 percentage points between December and January compared with a fall of 0.6 percentage points in the CPI 12-month rate between the same two months.
    Originally posted by AirlieBird
    Thanks. I apologise for jumping to conclusions on a far too cursory glance at just the CPI and RPI index tables earlier.

    This seems to show that the BoE has been worrying unneccessarily about the risk of inflation slowing down too much and fits nicely with my prejudice that inflation is booming / out of control.
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