Thursday, Feb 01, 2007
Inflation genie well and truly out of the bottle
FT.com: UK pay rises at six-year high
Pay settlements have risen sharply to their highest level for six years, increasing concern that wage demands will fuel inflation and trigger further interest rate rises.
Posted by bricksnmortarhaha @ 11:50 PM (144 views) Add Comment
16 Comments
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1. paul said...
Oh dear.
For over eight months the MPC has been telling everyone that we are witnessing a "spike" in inflation, soon to subside. This just shows that they were speculating without a clue about the real state of the economy. And of course no-one can validly claim to be surprised by this news - there's been a strong inflationary undercurrent for some time, regardless of the skewed CPI measure the bank keeps underlining (and everyone keeps ignoring).
2. Bobbins said...
"Pay bargainers, meanwhile, need to understand that efforts to match the current spike in retail price inflation will ultimately harm job prospects"
Patroninsing tw@t. I'm sure the Goldman Sachs bankers were concerned about this as they pocketed their millions.
3. Nohpc said...
Hmmm BA workers to get 4.5% pay rise over 2 years. So after tax around 3 % over 2 years. That's 1.5% a year. That's really gonna bust inflation!!!! It will take pay rises of at least 10% to have any effect whatsoever.
4. C'mon Correction said...
Oh dear, oh dear.
The Hitting Is Fan The Sh1t !
5. paul said...
Bobbins, take my word for it, at the first sign of a downturn the Goldman Sachs bankers will be the first to be unceremoniously booted out the glass revolving doors.
The real injustice is the Bank of England's portrayal of the tide of inflation as a "spike" when its actually more like a rising flood. As I've said before, Mervyn telling the workers not to seek above-inflation payrises is like telling people not to defend themselves if they are mugged because the mugger will only have to use more force.
Flawed and desperate logic at best.
6. Davros said...
> Hmmm BA workers to get 4.5% pay rise over 2 years. So after tax around 3 % over 2 years. That's 1.5% a year. That's really gonna bust inflation!!!! It will take pay rises of at least 10% to have any effect whatsoever.
I didn't realise everyone in Britain worked for BA...
Great comment.
7. dohousescrashinthewoods said...
Paul, I agree, there is a rising flood. Just because Gordon can throw in an artificial spike (fuel duty) and then crow about it falling back does not mean that underlying material and physical costs aren't taking leaps and bounds (Just because we like to think we are all virtual and don't need to worry about reality any more, doesn't mean we aren't still subject to it ;) )
I think we will see more and worse things swelling out of the woodwork and last year's energy prices dropping out of the calculation will soon be overtaken with other factors.
Shouldn't we all just take a deep breath, stand up, and start saying the Emperor has no clothes on? After all, prisons are full so they can't silence all the dissenters by locking us up under terrorism legislation..
8. David20040_0 said...
But I bet the BoE still won't have the bottle to raise rates.
9. Ticktock said...
"Pay bargainers, meanwhile, need to understand that efforts to match the current spike in retail price inflation will ultimately harm job prospects"
This 'self defeating wage negotiation' logic is truely sickening, and displays further eveidance that the understanding of inflation in the highest economic circles is wrong (or that they are willfully attempting to deceive people of course)
Rising prices and rising wages are a CONCEQUENCE of inflation, NOT the cause of it. Artifficially restricting the natural rises in either is an attempt to discuise the concequences of a huge growth in money supply and credit.(and hardly a 'free market' thing to do either)
Attempting to make the workers bare the brunt of the reduction in currency value that follows such expansionary policies, rather than the capitalists who wrought it about, truely is ugly indeed.
RPI, not CPI is the basis of wage negotiation anyway, for the simple reason that it bares far more resemblance to the true rise in the cost of living experianced by workers. Even RPI probably sigificantly underestimates the true burden of current inflation.
Raised inflatioary expectations are a result of raised inflation, and no amount of MPC bullshit can discuise this reality.
10. george monsoon said...
The emperor has no clothes on.. ha...
I like the analogy.. that would make a great song.
11. waitingfor hpc said...
Nohpc seems to hang on to small threads,.......... does BA an economy make?
Also what about energy (oil near $60 a barrel .... AGAIN), food, tax, imports, minimum wage rises, train fares (our window cleaner just put his prices up 25%), city bonuses,...... I work in manufacturing (only 15% of economy and not cared about by Labour - I know) but we have seen 35% increase in raw materials and put prices up 20% in the last year. Goods we buy from China are up 20%.
In Germany demands are 7% for pay rises, people in my factory are already saying they want 5+% to keep there heads above water ... they have noticed that the pay packet does not go as far now.........
I think it is time that some HPI forever believers accept that inflation is back and due in part to HPI itself.
12. C'mon Correction said...
This is yet another reason we will see 6% base rates soon. Expect to see other central banks keep tightening throughout the year too. Inflation has been depressed for a long time now, hence huge asset bubbles - it will now be turned on it's head. High inflation, assets falling. I can see my affordable (3 times my salary ?!) house marching towards me from the Horizon !!!
Where is glorious sunshine ?- it's a beautiful day !
13. paul said...
waitingforhpc,
I'm still looking for an explanation for why the current inflation surge isn't the direct result of MEW expenditure two years ago. After all, you can't simply release that amount int the public's hands and not expect an inflationary surge ...
14. Northernlad said...
Bobbins...I totally agree... the smug git!
15. Rdj104 said...
NoHpc,
A 4.5% increase is still 4.5% after tax.
For example if you could earn 100k gross, and your tax/NI takes 50% of your pay, you take home 50k.
up that by 4.5%, paid 104.5k, take home 52.25k.
The 50k take home pay has gone up 4.5% too.
I agree 4.5% over 2 years isn't good, but it's better than 3%.
16. dohousescrashinthewoods said...
I think I am going to take the only available position (as far as I have found) to reap some comfort for this economic mis-management and take out a National Savings index-linked savings certificate. At least then, if inflation runs away, I know that the government has to take some responsibility on at least a fraction of my finances.