Wednesday, Jan 17, 2007
Brown's reaction to inflation figures
Guardian: Chancellor plays down inflation rise
The high level of the CPI is due to the trebling of oil prices between 2003 and 2006, according to the Chancellor. 125% countries around the world have raised interest rates and experienced high inflation, with Britain's experience being less problematic than many others.
Posted by jellycaster @ 01:52 PM (136 views) Add Comment
11 Comments
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1. denzil said...
Rubbish!
The high rate of inflation on oil is a convenient scape-goat for this problem. The recent spike on inflation was during a period of oil prices falling. During the period that oil prices were $70+ a barrel the effect on inflation was minimal. Inflation is growing due to the huge rise in raw material costs and also to some extent pricing power returning to retailers + other factors like the increase in money supply.
During a period of slow growth it is easier to maintain inflation but as soon as growth picks up the genie that is surpressed inflation can be unleashed and rates will climb to their historic norm.
It is fair to say that another increase in base rates is almost a certaintly for Feb, the issue is will it be a .25% or a .50%.
Plain and simple the MPC dithered and in my opinion made a really big mistake by cutting rates in August 05 as well as not raising rates sooner. Inflation has been over the target of 2.0% for some time and the MPC have simply twiddled their thumbs and hoped it would go away.
2. Surfgatinho said...
Anyway, as we have solved the Middle East situation (Iran and Israel are now best friends, Iraq, with the 3rd biggest oil reserves, is a picture of stability and Islam is on the wane) oil prices could never shoot up to $80 a barrel again!
Yeah right!
3. Dohousescrashinthewoods said...
denzil, I agree with you, but I have a slightly different angle to add:
The biggest component of the jump was the increase in fuel duty (on top of falling prices, so it was a serious whack up).
That isn't going to happen again next month, so, all things being equal, upward pressure on the annualised figure will be a good deal less.
I can see GB next month trumpeting economic stability and the effect of the shock January rise when it is shown that the "rise in inflation has slowed". It may well be over 3.1 by then, but the rate of increase will appear to be slowing and the bank may even hold rates.
If we step outside arbitrary tax rises (don't get me started..) I think you have the nail on the head, oil is a poor smokescreen to distract and occupy comentators' wagging tongue mileage. Inflation is fundamentally rising. This month's "shock" increase was a Gordonism.
4. Dohousescrashinthewoods said...
Is it "pricing power" or are backs now well and truly against the wall with rising input prices meaning that margins can no longer absorb them and they must be passed on?
5. inflation is eating my savings said...
Agreed denzil. For most people energy is non-discretionary, therefore price rises lower disposable income, to some extent counteracting passing on of the costs by manufacturers.
As some of you may have seen, oil was scraping 50 per barrel today.
6. enuii said...
What do you expect from the Guardians of NuLabour at the Guardian, a sensible unbiased article, I think not.
7. Denzil said...
dohousescrashinthewoods said:
>>The biggest component of the jump was the increase in fuel duty (on top of falling prices, so it was a serious whack up).
>>That isn't going to happen again next month, so, all things being equal, upward pressure on the annualised figure will be a good deal less.
If I believed that oil was the guilty party here I would completely believe you but:
Off the top of my head wasn't the fuel duty increase 1.25p per litre which in reality is less than inflation anyway. I realise it is a big hit in a single month but the increase was delayed for so long that there should have been sufficient slack in the annualised rate to absorb the increase. What I really don't understand is that when prices at the pump were near to £1.00 a litre in the autumn the effect on inflation was negligable (even laughable) but all of a sudden a small increase is the scapegoat for inflation being a full 50% over the target set by the chancellor. Even the introduction of Uni fees a few months back applied little upward pressure.
Regarding "pricing power", my feeling is that it is a bit of both, raw material increases and the ability to charge more.
Pay rounds are going to be really interesting. I don't know anyone who will be happy with less than 5.5%.
Anyway, things will be OK when oil returns to $40 a barrel as written by Smith of the Times Newspaper.
8. paul said...
Umm, what THE HELL is the point of the daft and archaic ritual of the Governor of the Bank of England writing some stupid letter excusing himself to someone who is already making excuses on their behalf?
In other countries, that's called corruption.
9. Chillilizard said...
"The BoE data shows that M4 money, a broad measure of money supply, is rising at its fastest rate in 16 years on which will ensure higher inflation over the medium term. M4 rose at an annualised rate of 14.5%, the biggest rise since September 1990"
This was news in November last year. I'd like to know were all that extra cash is sitting. Hey... maybe inflation was really 9% and the uk economy grew by 5%????
Is it possible that the housing market has soaked up this money? What happens if there is a crash? Will the money supply figures they give us go down?
10. Van Hoogstraten said...
I think the letter would be along the lines of "I'm sick of having to work with the simpletons you foist on me on the MPC...... I've got enough to retire on.........I know you haven't a clue but you can sort out the mess....you've made your bed now lie in it......stuff your job up your arse.......goodnight"
11. Dohousescrashinthewoods said...
Paul, I think you are onto something.
In developing countries governments are fairly open about being corrupt. Here we try to make it sound nice.
I am tempted to prefer the more honest approach:
- WMD
- Loans for peerages
- Home office debacles (x N)
- Gordon's economic mirage
- Tony's policy spaghetti
- "Security concerns" used to introduce a police state (how else will they control the people if it breaks into riots?)
- Tony's mate Blunkett abusing his position and being invited back for more
- And good old Mandelson, remember him? Astonishing talent.
Does anyone still care about simple honesty and doing the right thing?
(to balance that, can any of us really claim personally integrity?)