Hooray for savings rates cuts

MatthewAinsworth wrote: »

As someone who's struggle to afford a holiday I spend nearly all my money here, even if the underlying products are imported, but there's a fair amount of UK labour involved in that so what I make on the £ scale is more relevant than what I make on the $ scale-

But because the underlying products are imported, the fact that you spend your money in Tesco or Aldi or Currys or Amazon UK in pounds sterling doesn't immunize yourself from the fact that they'll set their prices based on what it costs them to bring stuff in.

So the inevitable inflation of prices on the high street isn't driven by people wanting more stuff or having more money available to pay for stuff, it is 'cost push' inflation, and the only way for the retailers to avoid it is by squeezing the cost of the stuff they can control locally (i.e. not give pay rise to the shop workers), or simply make lower profits so there's less reward for them investing and they'll be reluctant to expand the business and employ more people.

If you buy a microwave oven on the highstreet rather than on the internet, you'll have a relatively lower exposure to the 'pure' cost of the imported product because there is more in the way of UK-costs like shop assistants. But those shop assistants want paying more money because everything in their lives are costing them more. If you're instead buying personal services like childcare or going to the barber or having a cleaner or gardener, then all those people want more money too. Because in the same way a UK bike factory charges more for the finished product because their cost of buying rubber and metal and plastic went up, the childcare person or barber delivering a personal service that they created themself, charges more for the finished product because their living costs of buying a TV or a car or a bunch of imported bananas or onions all went up.

So this idea that you are not worried about how many dollars you've got because you are not one of those people who needs to spend dollars, is maybe misplaced.

Its the idea that I'm someone whod benefit from protectionism.

If you can avoid buying goods or services containing any imported inflation and at the same time you're working in an industry that grows because people find the UK a low-cost centre to do stuff, you will be better off than some.

There is a general consensus by economists, which has existed for decades, that overall less protectionism is better because the free market results in more stuff being produced more efficiently without it. This doesn't mean certain countries or individuals couldn't be winners at least for a period of time by being protectionist.

They say petrol prices will rise but nowhere near what they used to be

Last year, crude oil was down at $30 a barrel. Which was £20 at an exchange rate of 1.5ish. Now it is over $50, which is £40 at an exchange rate of 1.2ish. So in sterling, the oil used to make petrol has literally doubled.

Fortunately, while the cost of refining it and distributing it has gone up with exchange rates, they haven't doubled, and the cost of running a petrol station hasn't doubled, and most of the cost you pay at the pump is fuel duty which is a certain number of pence per litre and hasn't doubled. So you are not seeing petrol at the pump for £2 when it was £1 last year. For once, we can be grateful(!) that the government charges us so much tax that we are insulated from changes in the underlying cost of the petrol ingredients themselves, because of more of the tax being a flat rate per litre than being the value-based VAT stuff.

Still, i) the oil price increases and exchange rate differences haven't all made their way to the forecourts yet because it takes a time for all the forward pricing agreements to run out, and ii) the oil price is not as high as it will eventually get, and iii) sterling is projected to weaken further.

Back in 2007/8 we had oil price sky high at $100+ but fortunately the dollar was 2 to the pound so it was 'only' £50-60 a barrel (and dollar weakness was part of the reason for the price in dollars being high). We got away with £1-1.20 a litre at the pump. Then 2011-14 we had oil price at over $100 without the dollar being so dirt cheap, at a more medium-y level of 1.6 ish, and found petrol at £1.40 a litre and diesel sometimes up to 145, 148. Then we got cheaper barrel prices with dollars at 1.5 to get us down to £1/litre. What we haven't tried yet is oil at $100 a barrel with dollars at 1.1 to the pound. I'm not predicting $100 oil any time soon, but that wouldn't be fun on the forecourt.

mollycat wrote: »

As Bowlhead said earlier, you should really try and educate yourself.

The stuff you're posting is total nonsense.

In a roundabout way there's a far amount of truth in the statement. Some people are benefiting at the expense of others. The wealth divide has grown. As a nation we have lost the community spirit and become increasingly self centred. Concerned in the main with the value of our property rather than ownership of other assets.

MatthewAinsworth wrote: »

I hope my mortgage will inflate away a little, cost push could do that I suppose, all depends on rates too

Do you know what the concepts even mean?

If people in the UK start wanting and buying and being able to afford greater quantities of goods and services, then the prices of start to rise because of an excess of demand over supply. That's demand-pull inflation as the prices of goods and services are pulled up. When we all have more money and all the things we're buying cost more money, the £100k mortgage liability seems like less and less of a worry.

However, cost push inflation is the result of supply-side factors like the cost of production and the cost of imported goods or materials being higher. The cost pushes up because the suppliers have less desire to give you the goods at a cheap price even though you still only want to buy the same amount of things. Price is a function of supply and demand but you could say that this sort of inflation is a 'supply falling short of demand' problem, rather than a 'demand exceeding supply' problem.

The problem with that sort of inflation rather than demand-pull inflation, is that you don't have any more money in your pocket, that's not why prices are rising. They are rising because of supply cost issues.

As such, the pound in your pocket buys fewer and fewer of the items in the basket of goods that you wanted to buy (everything from bananas to petrol to TVs and cars), AND you still owe the £100k on your mortgage. So, let us know how you expect cost push inflation to make your mortgage easier to service in that scenario. Actually it is harder. Plus, you said earlier you hoped or expected that interest rates would rise in the face of this inflation, and that will not make your mortgage easier to pay off, will it.

When I say, "let us know", it is rhetorical - let the others know if you like, but I'm done with this thread.