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Inflation Up To 3.7%, Rpi 5.3%


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The letters are out:

Penfold:

http://www.bankofengland.co.uk/monetarypolicy/pdf/cpiletter100517.pdf

George's reply

http://www.hm-treasury.gov.uk/d/chx_letter_180510.pdf

Interesting quote from George

As we have discussed, over the longer term I would welcome your view on how we might accelerate the process of including housing costs in the CPI inflation target

I take it George is not expecting house prices to go up then and wants declining house prices to bring down the inflation measures.

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so much for the deflationistas

it's inflation all the way from here

It was always going to be inflation - what the deflationists fail to take into account is that we don't actually have a free market or anything close. As soon as the market tries to deflate, governments respond by turning on the printing presses.

You can't inflate the entire economy instantly of course, nor does it all inflate evenly. Hence they just keep printing and printing and printing and by the time they have reached their initial targets it's way too late and inflation gallops onward, out of control.

Since salaries are nowhere close to keeping pace with inflation and the banks still haven't addressed their solvency problems (meaning constrained lending) I'd anticipate that a sizeable dip in house prices is very close now. This will be met with a renewed batch of money printing so get ready to get in there and get a longer term fix.

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Might I take it that you didn't have much interest in these things in 1979 and 1980?

p-o-p

I was too young then! However that does not alter the point though. And yes I do know that inflationw as much higher in the seventies and early eighties, but very high interest rates by today's standards were needed too.

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Alphaville has an article

http://ftalphaville.ft.com/blog/2010/05/18/234311/dear-george-about-that-inflation/

Cue a letter from the Bank of England’s governor Mervyn King to Britain’s shiny new Chancellor George Osborne, then. But how much does this matter to Bank policy, and UK economic recovery beyond that?

Well, as RBS analyst Melinda Burgess writes, emphasis FT Alphaville’s:

This is the fourth consecutive month that inflation has been at or above the 3.0% target. The most notable miss however was on RPIX which surged to 5.4% yoy from 4.8% yoy. This was well above the 4.9% expected and is also well above the old 2.5% target…

This is a worry given that with the economy is still showing only sluggish growth and the prospects of tighter fiscal policy this year implies that the BoE will be unable to tighten monetary policy too soon without risking the recovery. It also suggests that the relationship between inflation and growth may have changed. So far, the MPC has maintained that the rise in inflation is only temporary. However, CPI data continue to overshoot their forecasts and the risk to their credibility is rising. For GBP, the kneejerk reaction is to the buy the currency on the expectation that the data will bring forward rate hikes. However, uncertainty surrounding the June Budget, ongoing but still fragile recovery and a high level of debt at a time of stubbornly high inflation is an uncomfortable environment for GBP.

While the Bank of England may just have to grin and bear it (emphasis ours):

The April inflation data will provide a jolt to the Bank of England’s system, and it may lead to some heightened doubts within the MPC as to whether consumer price inflation will fall back as quickly as expected over the coming months and will be back under 2.0% through most of 2011. Nevertheless for now at least, the Bank of England is likely to stick to this view and the central bank still looks unlikely to raise interest rates anytime soon. Indeed, the May Bank of England Quarterly Inflation Report suggested that interest rates could even stay down at 0.50% over the next two years. However, we think it is more likely that interest rates will start to rise early in 2011 and then increase gradually to be around 2.0% at the end of 2011. Interest rate rises will be limited in 2011 by the major fiscal squeeze which is shortly to start hitting us.

Oh, what a scintillating epistolary romance is in store for Mervyn and George. Not.

Not looking for a raise just yet

Edited by Baby Eating Boomer
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IR will stay low if the pound and commodity prices hold. Another commodity bubble and/or a Sterling sell off and it's game over.

Sterling is falling again, can't even appreciate against the Euro which is saying something, can only fall with it.

Bring on hyperinflation, may even see Mervyn Kunt's 5 million pension pot shredded to worthless paper, even if it is invested in fake inflation protecting bonds it will still be worth nothing under such circumstances.

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The letters are out:

Penfold:

http://www.bankofengland.co.uk/monetarypolicy/pdf/cpiletter100517.pdf

George's reply

http://www.hm-treasury.gov.uk/d/chx_letter_180510.pdf

Interesting quote from George

I take it George is not expecting house prices to go up then and wants declining house prices to bring down the inflation measures.

My god i feel sick, but not surprised.

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Available now: http://www.bankofeng...ws/2010/043.htm

Executive summary: Bovvered?

you gotta laugh. these guys are worth every penny of the hundreds of thousands of salary.

Dear Chancellor ( personalised in crayon)

I am sorry to tell you that the CPI for April is over 1% more than the target.

we think there are 3 main reasons for this.

1 is an increase in prices

2 is another increase in other prices

3..cant think of one just yet.

Merv

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Sterling is falling again, can't even appreciate against the Euro which is saying something, can only fall with it.

Bring on hyperinflation, may even see Mervyn Kunt's 5 million pension pot shredded to worthless paper, even if it is invested in fake inflation protecting bonds it will still be worth nothing under such circumstances.

Inflation is the only way out for these guys. We've know this for some time.

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In regards to house prices and having wad of savings in £ ? High inflation is good - up until a point. Everything is squeezed, and whilst your money is losing value in terms of overall inflation, it will more than likely be gaining value in terms of house price deflation.

As long as it remains below 15% I will be more than happy. I may start to get 10% on my savings, whilst house prices will do amazingly well to even remain static in price. More than likely they could fall by 5-10% for the next few years.

So in terms of house prices the value of my savings could be shooting up by 10-20% over the next few years. Fingers crossed.

Now if the whole thing collapses however.....but not worth worrying about that.

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In regards to house prices and having wad of savings in £ ? High inflation is good - up until a point. Everything is squeezed, and whilst your money is losing value in terms of overall inflation, it will more than likely be gaining value in terms of house price deflation.

As long as it remains below 15% I will be more than happy. I may start to get 10% on my savings, whilst house prices will do amazingly well to even remain static in price. More than likely they could fall by 5-10% for the next few years.

So in terms of house prices the value of my savings could be shooting up by 10-20% over the next few years. Fingers crossed.

Now if the whole thing collapses however.....but not worth worrying about that.

That's my strategy in a nutshell. If the whole thing collapses we will have more to worry about than house prices and our wiped out savings.

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you gotta laugh. these guys are worth every penny of the hundreds of thousands of salary.

Dear Chancellor ( personalised in crayon)

I am sorry to tell you that the CPI for April is over 1% more than the target.

we think there are 3 main reasons for this.

1 is an increase in prices

2 is another increase in other prices

3..cant think of one just yet.

Merv

1 is an increase in printing

2 is another increase in printing

3 is another increase in printing

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This just shows that the people banging on about deflation are just wrong. I'm glad I have taken the view for over three years that inflation was coming and stocked up on NS&I certificates to the max.

This inflation is now getting beyond a joke though. I think teh BOE are not far away from loosing control of inflation.

Your argument is too simplistic. And others on here try to play the 'Inflation all the way from here' card too. There are shades of grey. Some of us believe there is a deflationary cycle (massive) to come before an inflationary explosion. Others discuss stagflation (wages stay low inflation high).

I'd really like the discussion to be more nuanced on this site but unfortunately it turns out to be the same old shouting match.

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Your argument is too simplistic. And others on here try to play the 'Inflation all the way from here' card too. There are shades of grey. Some of us believe there is a deflationary cycle (massive) to come before an inflationary explosion. Others discuss stagflation (wages stay low inflation high).

I'd really like the discussion to be more nuanced on this site but unfortunately it turns out to be the same old shouting match.

On this site you're either in cash or you're not. That's one explaination.

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Really? We're in the middle of a massive commodity bubble and Sterling sell off and they're doing nothing about it.

Actually we are not in the middle of a massive commidty bubble, commodity prices are pretty low (relatively), the overall index is only a few 10's of percent over what it was many years ago - mind you can you trust any indices any more. What you are seeing is the reduced purchasing power of sterling and the elevated commodity pricing of fuel and the canary in the coalmine - gold. Get passthrough in the commodity markets again and that will be the trigger for near hyperinflationary adjustments - we don't even need true yperinflation if wages don;t keep up, 10's of percent inflation will wipe out the persional balance books and the economy across the board.

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That's my strategy in a nutshell. If the whole thing collapses we will have more to worry about than house prices and our wiped out savings.

Exactly. And as for those in charge ? They all have wads of cash too, and so do their pals and their families. And I am sure they are just as selfish as everyone else. Of course they no doubt have land and other stuff - however they will have piles of £££ as well.

So whilst it is clear the Treasury, Government, BoE and whoever are devaluing the £. I honestly don't think they will just let it carry on until you are wiping your **** with a £10 note. Of course maybe they won't have a choice in the matter and it will happen anyway.

However, without coming out and saying it, I am sure they are just as wary of letting it all get out of control as well.

Anyway - least it's getting interesting around here again.

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