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

Basic Lesson Required In Oil / Inflation Please

Recommended Posts

Could someone please explain me to me the impact of rising oil prices on interest rates, inflation and consequently house prices?

As I undestand it, the rising oil prices will make it nearly impossible for the BOE to drop rates (because oil is bouncing up inflation).

However, Gordon Brown is going to want to stimulate the hose market isnt he? The only way he can do this I can think of is to drop rates?

God, I'm confused! :D

Share this post


Link to post
Share on other sites

mpc decide not the clown

am i right that the last drop in rates, 3 out of the 4 who voted for this were the clowns comitee members

also i think i read that this was the first fdecision where merv hasnt gone with the majority

i would not be suprised if those 3 vote for a .25 drop next month

Share this post


Link to post
Share on other sites

Oil affects everything - everything you buy is transported with an oil cost. Everything that is made has an oil cost. So high (or rapidly increasing) oil prices feeds through into the cost of living - and people then want a wage increase to cope with it - and this puts costs up for employers - who pass it on in higher prices etc etc. Inflation is hard to stop once it gets a grip.

Now it's public that Merv did not want the rate cut last month - can't see anyone voting against him again for a while.

Sterling at some sort of low against the dollar at the moment.

Only one way IRs are going in the medium term.

Share this post


Link to post
Share on other sites

Before you spend too much time analysing what the effects of high oil prices might be first consider whether the oil price will remain high.

The current oil price is showing classic bubble tendencies.

Share this post


Link to post
Share on other sites
Before you spend too much time analysing what the effects of high oil prices might be first consider whether the oil price will remain high.

The current oil price is showing classic bubble tendencies.

But because of the delay in the oil price inflation feeding through we already have a year of upward pressure to get through and that is assuming that oil goes down now.

I think that when Merv said the inflation pressure was short to medium term he was praying that oil prices will come down very shortly.

I think he is praying very hard at the moment.

Share this post


Link to post
Share on other sites
And interest rates have to go up to....help people's money grow to cope with the cost of living?

Surely it would be better for interst rates to be lower so that people can cope with loans etc?

Traditionally yes, the public invested their savings and the companies borrowed them and tried to provide a good return. If people start demanding pay rises, you can squeeze the companies by increasing rates. This should prevent the companies being able to offer pay rises and hence stave off inflation.

However these days the public has huge levels of debt and very little in the way of savings. Conversely the companies are now more cash rich than before - effectively they have more savings.

So the even a 0.25% increase in rates will kill the consuming public more than the companies. How this staves off inflation i don't know.

If the price of everything is linked to oil and oil doubles, you see the measure of inflation (RPI / CPI) rising, so current economic thinking is to raise rates. Now the public has less money to buy things, so it has to buy fewer things. Fair enough. But the companies still have no choice but to pass on the input price rises to the end cost, otherwise they go out of busineess - and when they do raise prices the MPC takes money away from the consumer and their sales drop - a no win situation.

Maybe the MPC should be looking at wage inflation, not consumer price inflation?

The more I know, the more I realise i will never know.

Share this post


Link to post
Share on other sites
But because of the delay in the oil price inflation feeding through we already have a year of upward pressure to get through and that is assuming that oil goes down now.

I think that when Merv said the inflation pressure was short to medium term he was praying that oil prices will come down very shortly.

I think he is praying very hard at the moment.

Couldn't agree more!

We are at a very interesting crossroads.

Interesting how Saudi Arabia have said they'll increase production to cover any shortfall from Gulf of Mexico. Shows that there actually is spare capacity at the moment.

Share this post


Link to post
Share on other sites

If inflation takes off house prices will not fall.

In this scenario as inflation rises house prices remain stagnant which is the same thing as a fall in the "value" of housesl. Imagine you were buying into an inflationary UK economy with Euros, for example - house prices would get cheaper as inflation rises.

What we may see are nominal house price falls (10%) combined with increased inflation. Confidence in the housing market will remain because people see prices "remaining" high.

Share this post


Link to post
Share on other sites
If inflation takes off house prices will not fall.

In this scenario as inflation rises house prices remain stagnant which is the same thing as a fall in the "value" of housesl. Imagine you were buying into an inflationary UK economy with Euros, for example - house prices would get cheaper as inflation rises.

What we may see are nominal house price falls (10%) combined with increased inflation. Confidence in the housing market will remain because people see prices "remaining" high.

I am worried about this as if inflation takes off even a bit then no-one will be able to afford their debt repayments (mortgage and cards). This would cause a crash that is much bigger than anyone here would want, the economy would be in a desperate state. All the downward spirals would feed each other.

Share this post


Link to post
Share on other sites
Could someone please explain me to me the impact of rising oil prices on interest rates, inflation and consequently house prices?

As I undestand it, the rising oil prices will make it nearly impossible for the BOE to drop rates (because oil is bouncing up inflation).

However, Gordon Brown is going to want to stimulate the hose market isnt he? The only way he can do this I can think of is to drop rates?

God, I'm confused! :D

Mandelson in "bra wars", Brown stimulating the "hose market"? They get up to some funny things these politicians.

Share this post


Link to post
Share on other sites
Before you spend too much time analysing what the effects of high oil prices might be first consider whether the oil price will remain high.

The current oil price is showing classic bubble tendencies.

Agreed about the bubble bit. But bubbles tend to go longer and higher than most expect so it would be very brave to call the top here. That said, I wouldn't be surprised to see a final surge higher (to at least $80, possibly $100 but I doubt that it would go much higher in the absence of something truly dramatic - like war) later this year followed by a collapse.

Due to the geological and industry development fundamentals, any price collapse does imply at the very least a collapse in demand growth if not outright falls in demand. In other words, global recession.

If oil prices keep rising then in due course that outcome seems quite reasonable to me. The question is when.

Share this post


Link to post
Share on other sites

The oil price may be in a temporary bubble situation (I wouldnt bet on it though) but really the only long term way for oil to go is up due to it being a finite resource (peak oil etc).

The housing bubble is very different however. If the sea were reclaiming one mile of coastline around the UK every year then there might be a similarity between the housing bubble and the oil price bubble.

The only long term direction for oil compared to wages is UP.

The only long term direction for house prices compared to wages is DOWN.

Share this post


Link to post
Share on other sites

Game is on and there are two players left.

China and United States. Oil is for grabs.

My guess is, this is no bubble.

Price increases are driven by increased demand, not disruption in supply

( see Economist most recent issue).

Endgame? China has low labour costs and can absorb oil costs.

American consumer must give up first.

Oil will only decrease in price when recession starts.

Perhaps sequence of events will be as follows:

Oil price increase leads to bursting of house price bubble in US,

so consumer demand decreases resulting in unemployment, recession.

Share this post


Link to post
Share on other sites
Game is on and there are two players left.

China and United States. Oil is for grabs.

My guess is, this is no bubble.

Price increases are driven by increased demand, not disruption in supply

( see Economist most recent issue).

Endgame? China has low labour costs and can absorb oil costs.

                American consumer must give up first.

Oil will only decrease in price when recession starts.

Perhaps sequence of events will be as follows:

Oil price increase leads to bursting of house price bubble in US,

so consumer demand decreases resulting in unemployment, recession.

Agree - we have reached a point where monetary policy is little more than politcal and economic tinkering, rigged inflation stats and bogus GDP based on debt expansion. Oil would not be at the price it is now if the central banks had not been incessantly increasing demand for it and at the same time intentionally debasing their currencies.

It is getting to the point where the piper demands payment.

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.

  • 302 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.