Monday, Feb 12, 2007
Energy falls relieve inflationary pressure
FT.com: Fall in energy prices cuts manufacturers’ costs
Manufacturers’ costs fell sharply last month as energy prices tumbled, official data released on Monday showed.
News that industry’s costs declined at their fastest annual pace in more than four years pulled the rug from under sterling, as traders calculated it reduced some inflationary momentum at the beginning of the supply chain and therefore cut the chances of further increases in interest rates.
Posted by dohousescrashinthewoods @ 05:44 PM (128 views) Add Comment
12 Comments
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1. paul said...
This is interesting.
The MPC is buggered if they raise rates and buggered if they don't. At the first sign of a reduction in inflationary pressures, the currency devalues sharply which can only be remedied by ... raising rates.
This awful situation would never have come about if the MPC hadn't ignored house price inflation - the prospect of rate rises on the back of this asset boom has significantly overvalued sterling. We are heading for an almighty crash if the bank doesn't raise rates next month.
And the following month, etc. etc.
2. Cheekie Charlie said...
Can anybody explain why double digit energy price rises over the past few years (as well as everything else) had little effect in raising inflation "because it wasn't in the basket of goods and we all had to pay for it no matter what". But when fuel prices stabilise (for the time being - finite resource) this reduces inflation??? If this isn't blatent manipulation of the figures then what is! It seems the CPI is there to fool all the plebs whilst the shisters get the cream!
3. tyrellcorporation said...
Falling energy prices might cut costs but companies are refusing to pass those reductions on to the consumer. In fact the opposite is happening and they are raising prices at the same time to claw back their profit margins.
I have a sneaking suspicion though that the BoE are going to try and maintain CPI at the very height of their range 2.5-3.0% for the foreseeable future. Eroding debt as fast as possible by the back door.
4. p. o. o. r said...
I see that British Gas is reducing it's prices, but not until the middle of March - just as people are starting to turn off their heating. Too late for the majority of people. Fuel prices around where I live have also gone back up 3 pence a litre in the last few weeks. I have just been notified my office rent is going up by a whopping 5% in May. Everything is going up up up in price... where will it end?
5. Northernlad said...
deceit:-
the action or practice of deceiving > a deceitful act or statement.
6. enuii said...
The answer is it won't end, don't forget virtually everything that can be outsourced already has and unless somewhere cheaper than China pops out of the woodwork prices have already bottomed. We have enjoyed the high value of the pound subsidising imports but there comes a point where costs cannot be cut anymore and the only way is up especially on food, services and non-tech items.
7. japanese uncle said...
B-Gas; "Hello, this is British Gas. I know that you are switching provider. Why do you do that?
Me: "Because you are increasing prices. I cannot afford such horendous price."
B-G: "The increase was necessary for us to make enough investment to provide energy better."
Me: "Not on me, pls. Why don't you say that to your chief executive earning multi-millions."
B-G: "Cost of our supply is increasing. It cannot be helped."
Me: "Then hire a schoolleaver and put him in the office of chief executive. Primary school boy can do the job if you are passing on the cost increase to your customers. Your company is making no management effort. I am extremely happy to leave BG."
BG: "Byebye (Enough is enough)"
BG is an evil operation, and destined to go bust sooner or later.
8. d'oh said...
Paul: House prices etc aren't in the CPI. I suspect this is by design as it allows inflationary policies. The other reason is inflation figures are adjusted to take into account "replacement\substitution effects". In the case of meat, one might adjust the amount of value mince in the basket relative to fillet steak. The effect of electronics on deflation is significant as the basket is adjusted by how much it would cost to buy last years top of the range PC this year, instead of comparing it to this years top of the range PC. I don't know whether they do similar things for energy, but one can imagine a calculation such as: heating costs go up, people substitute wearing more clothes for a few extra degrees of heating.
As for BG, the price decrease coming in March is hilarious. Do they take us for monkies? Oook?!
9. waitingfor hpc said...
i must be stupid - 12 months ago oil was circa $30 a barrel .... now it is circa $60 a barrel? Yet inflation has hardly moved and now dropping due to energy prices????????
surely oil would have to be $25 a barrel for this to have a truly negative effect??????
Please can one of my learned friends explain this for me??
10. David20040_0 said...
Oil hasn't been anywhere near $30 a barrel since 2001.
11. David20040_0 said...
Inflation is easing making another rate rise very unlikely. Maybe even a cut.
12. inbreda said...
Do us a favour david - try and answer the question.
Why is it that energy price rises have little or no effect on inflation, and yet a smaller drop has such a huge apparent effect?