Tuesday, Jan 19, 2010
That's me told!
BBC: Inflation rate rises to 2.9%, beating expectations
"UK inflation rose at its fastest annual pace for nine months in December. The Office for National Statistics said consumer prices rose 0.6% last month, taking the annual rate up to 2.9% from 1.9% in November. That was the biggest monthly rise in the annual index since records began and exceeded the City's expectations for an increase to 2.6%. Retail Price Index inflation rose to 2.4%, its highest level since November 2008." But at least them there price rises take a chunk out peoples' budgets that they'd otherwise waste on housing, further, interest rates are more likely to increase with a similar effect.
Posted by mark wadsworth @ 10:00 AM (2610 views) Add Comment
34 Comments
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1. p. doff said...
From ONS:-
''CPI annual inflation – the Government’s target measure – was
2.9 per cent in December, up from 1.9 per cent in November.
The increase in the CPI annual rate of 1.0 per cent between November and December 2009 is the largest ever increase in the annual rate between two months. This record increase is due to a number of exceptional events that took place in December 2008:
1) the reduction in the standard rate of Value Added Tax (VAT) to 15 per cent from 17.5 per cent
2) sharp falls in the price of oil
3) pre-Christmas sales as a result of the economic downturn
These exceptional events led to the CPI falling by 0.4 per cent between November and December 2008 (a record fall between these two months). The CPI increase between November and December 2009 of 0.6 per cent is far more typical (the CPI increased by 0.6 per cent between November and December in both 2006 and 2007). These exceptional events also affected the change in the RPI annual rate.''
2. Crunchy said...
You aint seen nothing and have no idea of how high interest rates will go over the next few years.
3. will said...
Labour have failed to keep to their fiscal promises - Maximum 2% CPI.
Rate rises coming post election.
4. mr g said...
"The City expected consumer prices to rise by 2.6%"
I know, I post this comment or similar, at least once a month:
When do these clowns ever get a forecast right?
Just another example of being richly rewarded for failure, the monkey referred to in a post last week could do better.
5. matt_the_hat said...
This was for December right! The vat increase came in on January the 1st.
6. ontheotherhand said...
Pound up to 1.64 against the dollar, presumably because the markets are expecting earlier interest rate increases here.
7. becky said...
"This was for December right! The vat increase came in on January the 1st"
Correct. I think this increase today is blamed on the DROP in VAT in 2008 falling out of the year on year figures. So we can expect to get an extra boost to inflation in the near future from it going back up to 17.5% on 1st Jan!!
8. mark wadsworth said...
MTH, I didn't understand that VAT adjustment either - we'd expect this to kick in in January 2010.
9. matt_the_hat said...
Becky that doesn't explain the mom figures then.
10. p. doff said...
8. matt_the_hat said...''Becky that doesn't explain the mom figures then''.
It does , actually:-
''The CPI increase between November and December 2009 of 0.6 per cent is far more typical (the CPI increased by 0.6 per cent between November and December in both 2006 and 2007).''
11. mark wadsworth said...
@ Becky, MTH
VAT went down 1 December 2008
VAT went up again 1 January 2010
So it was lower for thirteen months.
The change will depressed the yoy figures for November 2009 (15% VAT) against November 2008 (17.5%) but not the figures for December 2009 against December 2008 (it was 15% in both months).
So all things being equal, the December YOY inflation figure should be slightly higher than the November YOY figure.
12. jack c said...
Under the Bank's remit, governor Mervyn King has to write an open letter to the Government if inflation deviates more than one percentage point away from the official 2% target. How convenient the figure came in at 2.9% !
They expect inflation to spike in the next couple of months before returning to around target level - any excuse IMO to delay inevitable IR rises.
13. brickormortis said...
"The Retail Price Index includes council tax, mortgage interest payments, buildings insurance and house depreciation"
House depreciation? Did it used to include house price inflation? I am not being funny, this is a genuine question!
14. timmy t said...
Brickormortis - good question... And how come it's house depreciation when Haliwide keep telling us that houses are going up?
15. jack c said...
The CPI excludes a number of items that are included in the RPI, mainly related to housing eg Council Tax and owner-occupier housing costs such as mortgage interest payments, house depreciation, buildings insurance, estate agents' and conveyancing fees. CPI gives a lower figure than the RPI partly because the RPI includes housing costs whereas the CPI does not. Note it is not the price of houses which is included in the RPI but the cost of housing which includes mortgage payments and which, in turn, depend to a great extent on the level of interest rates.
16. dude said...
Naw, that's negative house depreciation.
17. stillthinking said...
I don't see that VAT should be used for inflation personally. If I buy two hamburgers for myself, and the government eats one of them, it doesn't make hamburgers more expensive.
18. matt_the_hat said...
16. stillthinking - what about if the 2nd hamburger was never even made just a civil servant stood at the hob pretending to flip the burgers.
19. Not Krusty said...
I'll eat my hat if interest rates go up. All the rules have been thrown out of the window. There is no guarantee that savings will rise with inflation and they most definitely are not. Maybe Inbreda was right when he said that savers should withdraw their savings out of protest. They didn't and now they are being walked all over.
IMHO (I'm no expert) interest on savings don't need to go up due to the fact of fractional reserve. Does anyone know if they have ditched the 10x system? If so they don't need savers' money to create new money so stuff savers.
A big question mark hanging over borrowing costs though. A friend has just taken out a fixed mortgage for 15 yrs at less than 6%. Ok this was in Holland, but it makes me wonder if the govs and banks want forever low interest rates?? Any thoughts??
20. mountain goat said...
I find these monthly figures put into annual rates very confusing. RPI went negative over the summer. So what was the inflation rate for 2009?
Office for National Statistics
21. paul said...
I'll bet this is all starting to look very uncomfortable for the MPC. It must be remembered that the MPC had this data in front of them when they took the last rate decision to ... do nothing! Again!
The embarrassing truth is that the Bank has artificially induced inflation by printing Harare-style.
In other news I see Blanchflower claiming the housing data is unreliable - all of a sudden.
Remember too that last week Andrew Sentance said that interest rates 'might have to rise' in order to shill up the GBP. And it worked! And still with this same inflation data in front of them, what did the MPC do? Nothing. They are taking the currency market traders and savers for fools.
It's all looking very very predictable.
22. hpwatcher said...
I never bought the deflation argument.
23. letthemfall said...
Take a look at the jump in gilt yields
24. paul said...
Has anyone noticed that the fall in VAT from 17.5% to 15% has induced higher inflation and the rise from 15% to 17.5% is also ... predicted to raise inflation?
Cynical about Bank of England's explanations for rising inflation? Moi?
Also if they're intending to call that a spike (as the meeting minutes are now arguing), it's a HUGE one:
25. hpwatcher said...
"The City expected consumer prices to rise by 2.6%"
I know, I post this comment or similar, at least once a month:
When do these clowns ever get a forecast right?
Just another example of being richly rewarded for failure, the monkey referred to in a post last week could do better.
What annoys me is apparently intelligent people listening to the rubbish that is spouted......
26. general congreve said...
All looking good for the long term gold outlook. Love it.
27. estrader said...
22. hpwatcher said...I never bought the deflation argument.
Neither did I, and I invested accordingly.
28. stillthinking said...
There is a delay between monetary policy and inflation, which apparently peaks 2 years after policy changes with a fade out taking 3 years. I think that there is a strong case for waiting until mid 2010 before drawing any conclusions about deflation, because the chart posted by paul@24 could equally well be a return to normality after a sudden shock rather than a new inflationary trend.
People are really carrying a lot of debt in the UK, and even now, are not looking happy. I think people will become even keener to get out of debt/deleverage as the year progresses.
29. mountain goat said...
estrader - Neither did I, and I invested accordingly.
Well done. But what now? Inflation lags the market as Stillthinking mentions. Not sure about years though, the market bottomed in March and inflation bottomed in June 3 months later. The market rallied right till xmas and now inflation spiking, surprise, surprise.
Deflation still accelerating in credit card and mortgage debt by the way if you want to look at the post today at 11.41 by Cat and Canary.
Apologies for my annoying lack of intelligence hpwatcher.
30. general congreve said...
Deflation is actually taking place as predicted. Just not in paper money. The effect of real money increasing in value relative to paper money is the same as goods and services deflating in real money terms. Providing the rate of increase of value of real money outstrips the rate of increase of the price of goods and services in real money that is, which is going to happen. 1973 - inflation at 9%. Gold up 64% in the same year.
31. hpwatcher said...
Neither did I, and I invested accordingly.
Good for you. There are plenty that did though.
32. hpwatcher said...
Deflation is actually taking place as predicted
I would call that credit deleveraging, rather than deflation.
33. general congreve said...
Price of goods and services becoming cheaper relative to currency over time = deflation, i.e. your money buys more. This is the situation we are in. However, the clever economists and politicians were only half right, because to be experiencing deflation rather than inflation your money needs to be real, i.e. gold.
34. hpwatcher said...
Dpends on whether you see gold as a currency or a commodity.
In general terms, I will say inflation and not deflation.