Thursday, Dec 13, 2007
Sorry no more rate cuts
Bloomberg: U.K. Inflation Expectations Reach Eight-Year High
Britons' inflation expectations rose to the highest in at least eight years in a Bank of England survey last month
Posted by mrmickey @ 11:49 AM (709 views) Add Comment
12 Comments
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1. tyrellcorporation said...
'Sorry no more rate cuts' ...MrMickey I think your optimism is misplaced!
I think they'll still be cutting even if inflation goes to 2.5% or above!
2. cornishman said...
I'm becoming more and more convinced that the only inflation that anyone in power is concerned about is WAGE inflation. If prices in the shops go up and food goes up and oil goes up and houses go up - it's all seen as irrelevant so long as wages don't go up by more than some undisclosed amount. They only have to fiddle the CPI for a few months more and the recent big hike in oil prices will drop out of the 12 month index and so be deemed 'irrelevant'.
Sadly, I can't see people in the UK rising up and demanding increased pay like the French would or like people did in the 70s - but you never know...
3. Hpwatcher said...
Let's just wait and see what they say inflation is at the moment.
4. paul said...
I don't really see how Mervyn King can keep his job if the inflation stats reveal rising CPI and RPI. The differential is now starting to look embarrassing.
5. it_is_going_with_a_bang said...
Fakeflation.
I wonder where the CPI has to go to get another 0.25% increase?
6. inbreda said...
Cornishman - I agree and think it explains the number of public sector jobs that have been created.
Unfortunately for Gordon the Police are kicking off. Then teh Nurses will.
Winter of discontent will be a walk in the park.
7. planning4acrash said...
Yes, the public sector behemoth created since 1997 is now expressing its vested interests. The government have a simple choice, accept higher inflation and wage expectations or control inflation and subdue pay demands. Workers do not unfortunately understand that they are subsidising BTL folk and private equity by subsidising low interest rates with a higher cost of living, so will call for higher wages without campaigning for higher interest rates. Fortunately the market is working effectively and LIBOR is high. The resources going now going into controlling interest rates is now looking like the exchange rate controls that led to the ERM debacle, because its simply unsustainable.
8. drewster said...
Slashing interest rates won't save the housing market! Look at Japan, 0% interest rates and a falling housing market for 15 years. Let's not focus overly on interest rates. Now that prices are falling, nobody will want to catch a falling knife - and nobody will want to buy a falling house.
9. Guiriduro said...
The average wage has been sinking in real, RPI adjusted terms, for several years. Against property it has sunk further, witness the incidence of 5-6x earnings mortgages, which only made sense while property values were appreciating and interest rates were low. If public sector workers demanded parity for the real depreciation they've suffered over the life of this parliament, there would be hugely inflationary demands (but if price inflation had been properly managed their wages would not have got so out of whack.) Its a question of Mohammed and mountain - either the government must bring wages up to parity with price inflation (bad), or it must allow prices to depreciate back to parity with current wages (a recession, also bad.) Blair was a liar, there is no third way, what's it going to be Mr Brown ?
10. techieman said...
drewster - cant agree with this, if it costs nothing to borrow money then why would anyone want to pay to rent somewhere? I think this is when we will have a dead cat bounce. (see my posts against yours earlier today). I.e. we have a big fall, then a dead cat bounce - i.e. a shallow rise AFTER a large fall and then a further plunge. The DCB could be when rates collapse (again i cant see this being all over quickly though). The mentality i have highlighted will be probably what causes the DCB - thats NOT to say i agree with that being a reason to buy. It then ALL depends on the state of the economy AT THAT TIME. But if rates were to Fall tomorrow to 0% then surely ("A" rated credit risks) would secure any loan! [I realise thats an extreme example and obviously it aint gonna happen but im sure you get the gist].
11. new user 2007 said...
One of the reasons that the govt cannot pay more is because it has run out of money. It spent the money it should have saved during the good times. That was why the economy was ok in 2001 i.e. fiscal stimulus. We created lots of public sector jobs that pay relatively badly. The official unemployment stats etc therefore look ok (not to mention the rising number on sickness benefit), but so many have just spent beyond their means.
The virtuous cycle is about to become vicious?
The BoE has been relying on expectations of low inflation to do its job for it. This free lunch is about to disappear as it is ignoring inflation. Just as China (the other big deflating force) now starts to inflate. Virtually every country in Asia (the source of our cheap goods) has gone from deflationary pressures for decade to inflation this year.
It must now be aware that it is losing credibility and so may have to at least try to pretend that it is concerned with inflation soon. The shocking thing about the recent interest rate cut was that it was unlikely to work in the three month money market, but it still went ahead. It knew the cut would not help there, so the only thing it could have been doing was to build confidence i.e. asset prices.
12. techieman said...
Nuser - exactly it was attempting a physological boost to sentiment. Thats why it was followed up yesterday with the effort to pump in liquidity. Its all about getting the best value for the buck. What used to happen with the G7 was they used to do concerted operations WHEN a market was overbought / oversold. The idea was to squeeze the shorts / Longs so that they added to the pressure on the "right" side.So for example when it was oversold they would buy, and there would be short covering that would exagerate the swing back up.
SOMETIMES this didnt work - eg ERM but most of the time it did.