Inflation rises to 4%

Fusion

Fusion

Fusion

Soldato
Joined
18 Oct 2002
Posts
10,632
Location
Notts
Yet another hike in CPI, from 3.7% to 4%. The question is, how much longer can interest rates stay at their present level? Many are doubting King's commitment to keeping inflation low, the 2% "target" seems a farce now as it's not been hit for a long time.

Quite a predicament to be in for the MPC given the economic contraction of the last quarter. There is concern in China with their 4.9% inflation rate and they are a devloping country with the luxury of ~10% annual GDP growth.

Where to go from here?
 
You can't keep inflation low, without increasing interest rates.

This most basic of economic theory 'rules' has been basically thrown in the bin to keep the masses from rioting on the street, so their mortgage payments could be taken out of the equation as much as possible.

..... meanwhile inflation sky rockets, and we only get to hear the 'official' number. And people wonder why everything costs more and more and more and more?! Hilarious.

The moment interest rates go up, the people will panic. Of course the 'evil tories' will be blamed for all the pain, and the fact that the country had to be put on economic life support in order to keep us from a Greek meltdown by the previous administration will all but be forgotten.

The sad thing is that people are starting to believe that mortgage rates of 0.5% are somehow 'normal'. Don't forget that Japan has been in the doldrums for nearly 20 years now - in a similar situation.

Its no wonder China became the worlds second largest economy yesterday.
 
Raising interest rates might kurb inflation to some degree but it's not without it's side-affects. The instant interest rates rise we can pretty much kiss goodbye to growth & welcome back our old friend recession.
 
I'm underwhelmed. What did people think the VAT rise was going to do - make things cheaper? The target might be 2% but there's a de facto tolerance of +/- 1% so we're only 1% above that. 4% inflation might be annoying for us all, but it can go a lot higher before it becomes a problem imo.

I think interest rate rises will be mostly pointless as the inflation is being driven by commodity prices (oil in particular) which would be unaffected by UK interest rate rises.
 
nucastle said:
You can't keep inflation low, without increasing interest rates.
Click to expand...

What did the government expect with increased fuel prices and VAT both of which inflate retail prices.

However, I think they are waiting to see the realised effects of the cuts and VAT rises before making any decision on rates..
 
Main reason for the 4% rate is the rise of VAT to 20% and oil prices going up, neither of which the Bank of England have any control over, raising interest rates won't stop these external factors pushing rates up further and have a very real risk of tipping us back into recession.

HEADRAT
 
The RPI is more like 5%, that is the one that you should be concerned with as it is that one which tells you what REAL inflation mean to your pocket.

Fuel inflation is around 15%.
 
It really is about time Merv looked at a 0.25% increase. The mortgagors have had it too good for too long. This current rate is wholly unsustainable and will need to rise. Surely better to do it in slow quarter point increments than larger increases later on.
 
scorza said:
I'm underwhelmed. What did people think the VAT rise was going to do - make things cheaper? The target might be 2% but there's a de facto tolerance of +/- 1% so we're only 1% above that. 4% inflation might be annoying for us all, but it can go a lot higher before it becomes a problem imo.

I think interest rate rises will be mostly pointless as the inflation is being driven by commodity prices (oil in particular) which would be unaffected by UK interest rate rises.
Click to expand...

Commodity prices largely priced in dollars, which are influenced by exchange rates, which are influenced by the value of money, which is influenced by interest rates.

Interest rates are SUPPOSED to be higher than inflation (anything more than parity is a bonus) to mitigate the effects of erosion in value of the currency. Otherwise money loses its value.

.... people can invent new economic theories all they like, when the political tide is turning, to suit whatever situation we are in. But we are, for want of a better word ..... SCREWED. The new buzzword 'quantatative easing' is another word for 'printing money', which would go down like a lead balloon if the powers that be actually said it - but it's been the only way to stop the west decending into chaos in the last few years.

We CANT raise interest rates or we will have riots/dissent, and the longer we leave them as they are, the more expensive and poorer we will become.

... which can be hidden, by making other things cheaper (booze, food, electronic goods etc etc - all getting cheaper ALL the time).

A generation of economic doldrums is what we will get.
 
scorza said:
The target might be 2% but there's a de facto tolerance of +/- 1% so we're only 1% above that.
Click to expand...

I have to smile at this logic. A 2% target but it's fine to be 1% above it, and not a problem to be 1% above the 1%.

Is it ok to be 1% over that too? After all, it's only 1%. ;)
 
rypt said:
You can try to keep it low by reducing taxes and duty though, most of the "inflation" currently is caused by VAT rise and fuel duty costs
Click to expand...

That's a short-term thing though. The idea behind using interest rates to control inflation is that it determines how much spare cash people have and therefore demand - i.e. raise interest rates, loans cost more, people have less cash, demand drops and prices fall.

Raising VAT will have the long term effect of lowering inflation as it reduces the amount of spare cash people have, but in the short term i.e. the next 12 months it will increase inflation because everything is more expensive. Given that, it might well be overkill to raise interest rates as well.
 
Fusion said:
I have to smile at this logic. A 2% target but it's fine to be 1% above it, and not a problem to be 1% above the 1%.

Is it ok to be 1% over that too? After all, it's only 1%. ;)
Click to expand...

Well then you'd be 2% above the allowed tolerance, I'm not sure what your point is? The 2% target is entirely arbitrary, I'm not sure why we need to stick to it at the expense of the rest of the economy. There's nothing to stop the government changing the target to 3% with a +/- 1% tolerance you know.

I never said it was "fine" - the governor of the BoE has had to write a lot of letters explaining why inflation is above the allowed tolerance which I'm sure he would prefer not to do. Given the lack of noise coming from Westminster we can presume that the government are satisfied with his explanations of why an interest rate rise isn't appropriate.
 
CPI and RPI are a joke anyways.

Things are added and taken out of the 'basket of goods' to suit whatever they want to push at any given time.

Yes VAT has effects on things in the short and long term, but it takes the focus and discussion about what INFLATION actually means in the first place.

INFLATION is about money being printed over and above the productive capacity of an economy by governments, in order to spend money they don't have in the first place.

Discussing the price of apples, ipods, and Moet Champagne being in/out the basket of goods, and whatever the figure is this month or the next (its generally always a lie anyways) because of temporary adjustments for VAT only serves to take the focus off the real issues.
 
scorza said:
That's a short-term thing though. The idea behind using interest rates to control inflation is that it determines how much spare cash people have and therefore demand - i.e. raise interest rates, loans cost more, people have less cash, demand drops and prices fall.

Raising VAT will have the long term effect of lowering inflation as it reduces the amount of spare cash people have, but in the short term i.e. the next 12 months it will increase inflation because everything is more expensive. Given that, it might well be overkill to raise interest rates as well.
Click to expand...

Most of the "inflation" in UK has little to do with supply and demand and has more to do with our currency, oil market and tax.
 
Those inflation levels are bogus. They are more like 5-8%. The BOE want inflation, the reason interest rates are so low is because this allows their good friends the banks to get for money free and then lend it to everyone else at 20%. Great deal for them. That is why mr king always looks so happy, cause he is rich and impoverishing everyone else. They aim for inflation, any central planner that admits that they are trying to debase the currency is obviously out to impoverish the country.
 
You must log in or register to reply here.
Back
Top Bottom