Tuesday, Apr 20, 2010
More letters from Mervyn on the way
Bloomberg: U.K. March Inflation Accelerates More Than Forecast
The U.K.’s inflation rate jumped more than economists forecast in March, breaching the government’s upper limit for the second time this year after energy costs rose within weeks of the election. Consumer prices climbed 3.4 percent from a year earlier, compared with a 3 percent increase in February, the Office for National Statistics said in London today. The median forecast of 30 economists surveyed by Bloomberg News was 3.1 percent. On the month, prices increased 0.6 percent.
Posted by jack c @ 10:14 AM (2311 views) Add Comment
26 Comments
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1. i remember the 90`s said...
Write a letter, that just cracks me up to say yes Gord i have done as instructed keep % rates low slaughtered the frugal in favour of the over extended give me a break!!!!!!!!!
2. little professor said...
This is a freakin' joke. Inflation is accelerating away despite assurances that January's figure was just a spike caused by the VAT hike. It's only getting worse and worse. They'll have to raise interest rates shortly after the election, they'll have no choice.
RPI rose to 4.4%, too. Looks like my index-linked savings certificates are proving an excellent decision
3. mrflibble said...
Don't worry it's only a blip, just like the hpc was only a blip.
Is it just me or do others get the same feeling that we have walked into the lions mouth with only a candle to guide us?
Still on the plus side Sterling is heading back up...
4. mark said...
does anyone know how inflation will effect the UK credit rating? if at all
5. cynicalsoothsayer said...
Rising inflation will force higher interest rates, which will force action on the deficit, which should improve the UK credit rating. In theory, anyway.
6. mark said...
Thanks, so assuming the banks acts and raises rates, shares should boom?
7. Wageslavex14 said...
@ Cynical soothsayer - that assumes that whoever wins the election will act responsibly. The last 18 months of policy decisions have been almost exclusively irresponsible, and made on short term political considerations.
I want to agree with you, but that doesn't appear to be how it's panning out.
8. James said...
It's gonna be back to the inflation spirials and IMF hand outs of 70s all over again. Because Gordon Brown does not have any economic qualifications, he does not realise that the philips curve does not work, trying to trade higher growth and employment for higher inflation only works in the very short-term, higher long term inflation and lower growth and higher unemployment in the long term outcome. The governer of BOE is limited in what he can do given that he is held to ransom by downing street. Juts like Eddie Goerge knew that there was a house price bubble and unsustatinable debt as early as 2002 but he could do nothing to curb it because Gordon Brown wouldn't let him. Independent central bank - don't make me laugh!
9. cynicalsoothsayer said...
Higher interest rates will force some firms out of business, others to reduce their costs and workforce. If that happens there is likely to be an investor run towards essentials (non-luxury) suppliers, so they should do better in a rather turbulent market. Shares overall will only boom if the feel good factor returns.
10. becky said...
@5 "Rising inflation will force higher interest rates"
In theory yes, but nowadays they just seem to ignore it and say it's all down to temporary factors.
Of course, it was a different story for deflation which sent them into panic mode with emergency interest rate cuts despite the fact CPI never actually breached it's 1% lower limit as far as I'm aware!!
11. uncle tom said...
A large slice of state spending - benefits, pensions etc - is linked to RPI..
..this won't help the budget deficit at all, and will make the ratings agencies even more twitchy about our sovereign credit rating..
A single notch downgrade on our credit rating will push the servicing cost of our national debt up by around £10bn, which, in practical terms, is the equivalent of over 4p on the basic rate of income tax, or over 25% on council tax. This is not small change; and as always, it will hurt the prudent most, and not the feckless.
Whatever one's political philosophies, it is imperative that the next government has the mandate, the integrity and the resolve to manage the budget deficit in a decisive manner, and to reassure the ratings agencies.
A hung parliament would almost certainly be a disaster..
12. mrflibble said...
9. uncle tom... A hung parliament would almost certainly be a disaster..
And there is where we are heading. It would seem Nick Clegg is a black swan...
13. letthemfall said...
I wonder how high inflation can go before interest rates are raised.
As for a hung parliament being a disaster, all parliaments in recent decades have been something of a disaster for some. Whether the next parliament is will once again depend on who you are.
14. Exiges said...
@LittleProfessor "RPI rose to 4.4%, too. Looks like my index-linked savings certificates are proving an excellent decision"
Yep, I took RPI + 1% .. and tax free too.. show me where else a high rate saver can get 5.4% after tax and safe.
15. Colloboss said...
A hung Parliament is exactly what the sleazebags want, so then the can blame our indecision for the crisis, I see it now, Gord will squirm up to the microphone and say 'I'm sorry there's nothing more I can do, I've done all I can, it your mess not mine'
16. greenmind said...
Well said letthemfall!
17. 51ck-6-51x said...
The next letter will just say, inflation is currently as was predicted in the last letter (ok, 3.4 not 3.3) and that that letter's prediction of the observation of short term inflationary effects which will then subside is currently on course for being accurate - and hence rates can stay at 0.5%.
p.s. Yes, even though CPI is above the mandate's upper acceptable range by 40% [ =100% * (3.4 - 3) / (3 - 2) ], it won't be long, promise xxx
18. mr g said...
A bit of "out of the box thinking" for Tuesday evening:
The usual line is that the profligate and indebted are supposedly helped by inflation effectively reducing their debt, doesn't it follow that the combination of higher prices and higher interest rates inevitably brought about by said inflation will actually work against the profligate?
Unless of course they receive 1970's style pay increases which I can't see in the present economic climate.
19. jack c said...
mr g - there are currently many parallels with the 1970's but I dont see wage rises every 6 months or so as one of them so the people you describe could well be crippled by the debt burden and burnt by rising prices (food and fuel in particular). I did say on here many months ago that after the election it was off to hell in a handcart (which flashman countered) and I pretty much still see it that way.
20. enuii said...
When I was a kid I remember watching and understanding the implications of inflation in terms of the rapid increase in the price of crisps and mars bars. With crisps in particular rising from 2p per pack to 2.5p (sent to school with an old sixpence instead of a 2p coin) and upwards to 5p in little more than a year. Jelly snakes and blackjacks/fruit salad showed a similar effect as they went from 0.5p ea to 1p ea overnight.
Those who are under 40 will not have had the experience and may be truly shocked by what might materialise and it's effects on their pockets over the next 10 years.
21. mr g said...
@JackC "after the election it was off to hell in a handcart."
@Enuii "Those who are under 40 will not have had the experience and may be truly shocked by what might materialise and it's effects on their pockets over the next 10 years."
I agree 100%
22. tenyearstogetmymoneyback said...
Stephanie Flanders on the BBC Website makes a good observation
"Investors also know that the UK government has more to gain from an unexpected bout of inflation than almost any other economy.
That is because - like the US - a lot of our government debt is held abroad, meaning that they, not UK citizens, pay some of the price of a fall in the real value of UK debt."
The full article
http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2010/04/a_surprise_definitely_a_proble.html
What she omitts in the article is the effect of the plummeting £. I was ordering connectors at work today.
The price in the 2009/10 catalogue 56p. The price now on the website 89p
23. p. doff said...
All this talk of crisps and schooldays is making me nostalgic. There wasn't much choice in my day - plain Smiths crisps with the little blue bag of salt inside was the order of the day. Sometimes there was an error in the packaging process and you would get 3 or 4 salt bags - and that really made your day. Then along came Golden Wonder with that marvellous invention - the cheese and onion flavour crisp. And all for twopence halfpenny in old money. You would nip to the tuck-shop, purchase a fist size mini Hovis loaf, hollow it by picking out and eating the soft bread centre, then replace the contents with crushed crisps that you had previously prepared by scrunching the bag. The only drawback was the school bully smoking the untipped Woodbine (bought in packets of five) - who used to lie in wait inside the bus shelter near the tuck shop and pounce on the unsuspecting first former and deprive them of their snack.
Oh yeah, just so I can stay on topic, petrol for my Triumph 500 Speed Twin was five bob a gallon, then it shot up to six and eightpence - That's when I learned about inflation.
24. alan said...
9. uncle tom... A hung parliament would almost certainly be a disaster..
Brown had a majority and he brought Britain to its knees. Another 5 years and it will be on its back!
As for the Tories, Ashcroft and his mates won't be paying any tax, so no worries for them.
25. wanderinman said...
I had personal evidence over the weekend of how fuel costs are now really feeding through into retail prices. I went into my local cycle shop and overheard a conversation between the store owner and a customer, where the owner was saying that bicycle prices will be going up next month. He then went onto to explain that the transport costs were largely to blame - there had been a 40% increase!
26. markj69 str05 said...
@alan 20... Britain is on it's knees, bent over double, whilst the financial sector buggr it stupid. And I bet most of the money's sucked right out of our economy.
Re-Tories.. I bet they're more concerned with the low returns on their savings than the labour MP's are on their housing portfolio's!