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Matt

High Oil Prices Cause Inflation To Fall

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Don't know if it's already been mentioned but on Breakfast (BBC) today a woman who sat on the BoE interest rates committee said that whilst oil prices will push up inflation, this will mean people have less to spend and inflation will then fall again. She predicted the next move in IR would be down.

But hang on, don't the costs for retailers etc go up as well so they can't cut prices? I thought the BoE was full of clever people? I was amazed when I heard this.

(am I wrong?)

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Guest muttley
Don't know if it's already been mentioned but on Breakfast (BBC) today a woman who sat on the BoE interest rates committee said that whilst oil prices will push up inflation, this will mean people have less to spend and inflation will then fall again. She predicted the next move in IR would be down.

But hang on, don't the costs for retailers etc go up as well so they can't cut prices? I thought the BoE was full of clever people? I was amazed when I heard this.

(am I wrong?)

Well she's right!

The only inflation worth measuring is wage inflation.The scenario she is talking about just involves a fall in the standard of living.I'm sure no-one will mind!

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Absolutely, without wage inflation oil price rises could be deflationary.

Retailers could theoretically cut wages in order to cut prices so that people who are spending more of their income on oil can still afford to buy consumer goods - except they've had a pay cut - Doh!

Deflationary spiral. Doesn't sound like much fun - especially if you happen to have debt.

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Always better to have a low inflation rate than any other option.

Deflation would be worse than low to medium inflation hence why BofE are prepared not to raise rates too quickly.

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Well she's right!

The only inflation worth measuring is wage inflation.The scenario she is talking about just involves a fall in the standard of living.I'm sure no-one will mind!

But do you really believe that?

What then is that evil of inflation that must be avoided at all cost? That we all pay ourselves more? Hardly.

Surely, the real evil of inflation is not knowing how much more expensive a loaf of bread is gonna be in the afternoon if you don't buy it in the morning.

Historically this has implied spiralling wages, but is that really the only means by which a currency can have its purchasing power undermined and undermined continuously?

I am beginningto wonder whether some economists are losing sight of why their subject came into being. They seem far more interested in index compilation and measuring stuff they can control, rather than measuring stuff that is really important, controllable or not. I offer you this all too common econo-speak:

""The increase in inflation in August was primarily due to higher prices for fuel and some food items, while core consumer inflation actually edged back down to 1.7% after spiking up to 1.8% in July from 1.5% in June," said economist Howard Archer, at Global Insight.

Mr Archer said he believed there may still be another 25 basis point interest rate cut to 4.25% before the end of the year, although he said this may not happen until early 2006. "

Think about it : the inflation rate of energy and food have, over the years, ceased to be "core". Presumably that makes them peripheral.

Similarly people will tell you that the rsing cost of goods ceases to be important and that only wages matter. What kind of a cockamamee world have we slipped into?

Edited by Sledgehead

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  • 301 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%



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