Jump to content
House Price Crash Forum
Sign in to follow this  
interestrateripoff

It's 'negflation' That Britain Really Needs To Worry About

Recommended Posts

http://www.telegraph.co.uk/finance/comment/jeremy-warner/7859532/Its-negflation-that-Britain-really-needs-to-worry-about.html

One was a warning from John Bason, finance director of Associated British Foods, the owner of the discount clothing chain, Primark, that the cost of clothing in the UK could rise by as much as 5pc over the next year because of increased transport costs, the weakness of sterling, and the increase in VAT.

According to Mr Bason, this will be more than just a temporary blip. Strongly rising wage pressures in formerly low-cost manufacturing countries such as China, mean that the era of ultra-cheap clothing – prices have been falling pretty much uninterrupted for nearly twenty years now – is well and truly over.

The other was the warning from Philip Hammond, the Transport Secretary, that swingeing public spending cuts are likely to cause steep increases in rail fares next year. Conventional wisdom, echoed by the Bank of England in its last Inflation Report, is that recession induced excess capacity in the economy will push down on inflation for some time to come.

These two warnings may suggest otherwise. Inflationary pressures have remained surprisingly strong right through the downturn, and there is as yet little sign of a let-up. Nor are these pressures of the traditional sort, where there is an excess of domestic demand over supply with a consequent build up of wage pressures. There is hardly any danger of that right now.

Rather they come either from external sources, or as in the case of rail fares, as a result of the removal of state subsidy from public services. This is "cost push inflation", rather than "demand pull", but no less damaging to disposable incomes and business confidence for it.

Like a retreating army, the Bank of England is with each Inflation Report forced to push the point at which it meets the inflation target further out into the future. Failure to deliver price stability more immediately, which is the Bank's remit, is excused by its promise somewhere over the rainbow. Alternatively, the Bank asks us to focus on narrower measures of inflation, which strip out inconvenient variables such as food and energy.

Rising domestic demand from the big developing economies of Asia and Latin America are good reason to believe these elevated levels of inflation are more than just temporary. These countries now compete aggressively with the West for all forms of resource, from labour to energy and food.

As one of the world's most open economies, the UK is particularly vulnerable to pressures of this sort. But no advanced economy is entirely immune. The US consumption boom was built on cheap Chinese goods. These are about to become more expensive. That's possibly good news for the US economy, for it makes domestically produced goods more competitive, but it's not great for inflation.

Already, inflation in the US is not as tame as it seems. Officially, it stands at just 2.2pc. But recalculating the rate using the European Union's "harmonised index of consumer prices" (HICP) produces a figure of 3.5pc, not appreciably lower than the UK's 3.7pc.

The policy dilemma facing central banks is often framed in terms of a choice between "deflation" and "inflation". Yet the chief long-term risk is unlikely to be so obviously polarised. Nor is it 1970s-style "stagflation" we have to worry about; few would think the return of double-digit inflation at all likely.

What Western nations may instead be facing requires a new word – say "negflation", defined as static or gently declining real levels of output in combination with higher-than-desirable inflation. Any such combination would pose extreme challenges for policymakers.

Forget Monday's insane suggestion from the Bank for International Settlements that monetary policy be tightened alongside fiscal retrenchment so as to avoid distortions in the money markets and the creation fresh asset bubbles. Only a masochist would think it sensible to tighten monetary conditions in a period of extreme fiscal austerity. Interest rates must remain low if the fiscal squeeze is to be effectively countered by rising business investment.

Maintaining such rates may on the other hand require tacit acceptance of elevated levels of inflation. Indeed, it might reasonably be argued that for the UK at least, the inflation target has already been sacrificed to the more important growth objective.

If that's true, living standards would thus suffer something of a triple whammy. Disposable incomes are already being hit by rising levels of taxation and public services are bound to suffer as a result of spending cuts. Below inflation wage increases would deliver the final blow.

FFS yet another retard seeing "inflation" as "growth".

Goebbels would be proud.

Surely he means Austrian rather than masochist?

Still this global crisis is contained and the worst is behind us. The recovery is locked in....

Share this post


Link to post
Share on other sites

cost push inflation due to rising eastern economies cannot be avoided.

we have had 30 years of cheap goods and labour from the east and the idea of raising interest rates so that this fantasy land can continue is very silly.

Only a retard would think that this is the correct policy for the UK. You'd have to believe in free lunches to think it could work.

inflation is not growth but it'll certainly put a fire under UK investors to put their money to work.

Share this post


Link to post
Share on other sites
Nor are these pressures of the traditional sort, where there is an excess of domestic demand over supply with a consequent build up of wage pressures. There is hardly any danger of that right now.

Same sh1t, different @ssh0le.

Share this post


Link to post
Share on other sites

cost push inflation due to rising eastern economies cannot be avoided.

we have had 30 years of cheap goods and labour from the east and the idea of raising interest rates so that this fantasy land can continue is very silly.

Only a retard would think that this is the correct policy for the UK. You'd have to believe in free lunches to think it could work.

inflation is not growth but it'll certainly put a fire under UK investors to put their money to work.

Put to work overseas?

Or just shoved into assets per the last decade, both much easier than attempting wealth creation in the UK.

All this push/pull waffle is horsedung. A feck load of debt has been printed the only difference of this inflation is who us holding it and who must work it off. The mechanics are the same we (as a country) are just used to getting the less sh1tty end of the stick.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 152 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.