Realistbear Posted January 18, 2011 Share Posted January 18, 2011 Where did I make any forecasts? You must be confusing me with someone else. I think I made my point. A few weeks ago I invited HPcers to take a bold step of courage and put their forecasts in their signature so we could compare who was the most accurate at the end of the year. It was also designed to make HPCers put up or shut up--can't criticize others if you have nothing to say yourself etc. Monday morning quarterbacking is what they call it in the US. Easy to do and requires little talent. BTW my 2010 forecasts were in the top 5% percentile with the Euro and Sterling tanking vs. the $ last year and US Bonds being very strong (13% return on the best bond funds). Are you into gold by any chance? Quote Link to comment Share on other sites More sharing options...
Guest_FaFa!_* Posted January 18, 2011 Share Posted January 18, 2011 See the thread future prospects for the £ posted today. I'll have a look A higher pound is the ST knee jerk reaction to the BoE now being forced to raise the rates (probably at the next meeting). Higher rates will lay our economy to waste, cause a mega HPC sooner rather than later and force the price of our exports up at a time when our trading partners are also struggling to survive. Sorry, how does this effect whether it is worth buying £s? You haven't addressed the point that if the £ is yielding more than other countries, this will lead to a strong currency. The key in a falling economy is to lower your currency and the strong economies can do this. The US and China are BOTH keeping their currencies artificially low as is Japan. Don't follow that at all. Why do you need to lower your currency? Sounds like mercantilism. Japan is not keeping its currency low - it is at or close to record highs vs the $, £ and Euro. Various attempts to intervene in the market over the last few years have failed. Merv has nowhere to hide now as the numbers must be based on pre-VAT rises. THe IMF will pull our AAA+ if the rates are not hiked by February and that will trigger a £ sell-off. Sprry, don't understand that either. Why would the IMF pull our AAA+ rating? And are we rated by the IMF? Our rating is dependant on our ability to service the debt, which would be dictated ultimately by fiscal and not monetary policy. Quote Link to comment Share on other sites More sharing options...
Pent Up Posted January 18, 2011 Share Posted January 18, 2011 BBC News have announced that they are getting lots of emails from people worrying about a possible interest rate rise. eg "I can only just keep up with my mortgage payments now......." Oh dear . The problem for them is they won't be able to keep up their repayments if interest rates DON'T rise! Quote Link to comment Share on other sites More sharing options...
The Eagle Posted January 18, 2011 Share Posted January 18, 2011 (edited) Are you into gold by any chance? I don't put my eggs all in one basket, my savings are widely spread. Edited January 18, 2011 by wise_eagle Quote Link to comment Share on other sites More sharing options...
nickincash Posted January 18, 2011 Share Posted January 18, 2011 This is the first time I have ever seen CPI increase more than 1% in a month - it's equivalent to an annual increase of over 13%. . . . and here's another thought . . . if prices remain exactly the same in January (likely?) then the next annual CPI figure will be 3.9% so I reckon 4%+ is on the cards. Quote Link to comment Share on other sites More sharing options...
rantnrave Posted January 18, 2011 Share Posted January 18, 2011 The problem for them is they won't be able to keep up their repayments if interest rates DON'T rise! Yip. One way or another, this country is going to pay for the madness of the (credit created) boom years. We're at cruise speed toward that moment. Quote Link to comment Share on other sites More sharing options...
Pent Up Posted January 18, 2011 Share Posted January 18, 2011 I don't put my eggs all in one basket, my savings are widely spread. I'd dump the property, not a good inflation hedge of late. Quote Link to comment Share on other sites More sharing options...
fluffy666 Posted January 18, 2011 Share Posted January 18, 2011 This might be a stupid question, but why will interest rate rises curb inflation? The idea is that higher IRs push up the pound, thus reducing the cost of imports (hence imported inflation, in food, clothes and oil especially). Additionally, consumers have less money to spend, putting downwards pressure on prices, and of course any assets typically bought with borrowed money will drop in price. i.e. houses. The downside is that local manufacturing and exporters will be hit, many people will be pushed into bankruptcy, unemployment will skyrocket, and the consequent loss of tax revenue will force the government to borrow more and cut more. Much as we see in Ireland. And, of course, if that happens then imported inflation will rise again. Personally, I don't see how we can possibly get out from under the personal debt mountain without a sustained period of ~10% inflation coupled with ~7% wage settlements. Quote Link to comment Share on other sites More sharing options...
The Eagle Posted January 18, 2011 Share Posted January 18, 2011 I'd dump the property, not a good inflation hedge of late. It isn't UK property, it's located in the most stable european housing market. Quote Link to comment Share on other sites More sharing options...
koala_bear Posted January 18, 2011 Share Posted January 18, 2011 This is the first time I have ever seen CPI increase more than 1% in a month - it's equivalent to an annual increase of over 13%. No it isn't, the 3.7% figure is on a annualised basis not a monthly basis Quote Link to comment Share on other sites More sharing options...
pandora's box Posted January 18, 2011 Share Posted January 18, 2011 The idea is that higher IRs push up the pound, thus reducing the cost of imports (hence imported inflation, in food, clothes and oil especially). Additionally, consumers have less money to spend, putting downwards pressure on prices, and of course any assets typically bought with borrowed money will drop in price. i.e. houses. The downside is that local manufacturing and exporters will be hit, many people will be pushed into bankruptcy, unemployment will skyrocket, and the consequent loss of tax revenue will force the government to borrow more and cut more. Much as we see in Ireland. And, of course, if that happens then imported inflation will rise again. Personally, I don't see how we can possibly get out from under the personal debt mountain without a sustained period of ~10% inflation coupled with ~7% wage settlements. That makes a lot of sense. Thank you. Quote Link to comment Share on other sites More sharing options...
frenchy Posted January 18, 2011 Share Posted January 18, 2011 (edited) Saying what? Dear Merv, I demand that you lower the global prices of all commodities? If house prices are falling anyway what woud be achieved by raising IR? Wouldn't it just strengthen the pound and thus exacerbate the problem? the problem is almost entirely down to the weakened pound (remember -25% vs EUR and -20% vs USD in past 3 years). The UK has a significant trade deficit so we basically are net importers, anything that strengthen the pound would improve the situation, not exacerbate it. Fuel is priced in USD and a lot of what we import from our neighbors is priced in EUR... edit: so basically everything we buy is bound to cost 20-25% more than 3 years ago, in addition to any market fluctuations (e.g. commodities) and remember that any goods that we make and can export inevitably rises in price domestically because exporters can get more abroad for it and therefore raise their prices at home. What the UK need is a STRONG pound, we are not Germany, it will not hurt us(and I am saying while still holding a fair chink of EUR before you ask) Edited January 18, 2011 by frenchy Quote Link to comment Share on other sites More sharing options...
rantnrave Posted January 18, 2011 Share Posted January 18, 2011 It isn't UK property, it's located in the most stable european housing market. Vatican CIty? Quote Link to comment Share on other sites More sharing options...
koala_bear Posted January 18, 2011 Share Posted January 18, 2011 Well there are 2 arguments to this. (1) Demand pull inflation. Rates up = more expensive to borrow money to buy stuff = people buy less = downwards pressure on prices. (2) Cost push inflation. Rates up = currency up = import costs lower = stuff that people buy from overseas gets cheaper (Relatively) = inflation drops. For us #2 looks the more important one at present. I don't think demand pull inflation is much to worry about just now. My take on it anyway. Far more complicated I imagine - but that's a high level basic summary !! Definitely #2 that will control us for a long time (until the UK consumer de-leverages significantly, and the banks have accepted they have bad debts and worked it out of the system). Don't shoot me for this, I'm only the messager: Merv. and the MPC realise that it is number 2 and raising rates will destroy the export led recovery too so they won't (they know a UK lead one ain't really going to happen!). Using IRs to control imported commodity inflation is pretty ineffective. The pound will keep sliding as the North sea oil continues drying up, we need to import more oil thus widening the trade gap (yes it does matter, the governments have conveniently forgotten about it for the last 20 years as the UK huge and growing financial services industry allowed them to ignore it will times were good) Needless to say Merv and co can't admit any of that without start a currency war and WTO infringement action. However if they sense UK companies trying to get a bit more profit out by increasing prices they might act with shot across the bow with a rise to 1%. My view is that they might as well raise IRs as most of the borrowing that matters to business is not based on BoE but Libor anyway, the only ones hurt by high Boe IRs are those with mortgages. The 2 MPC members descenting from the central "do nothing" view are just distraction tactics as it would be too much of a conspiracy if all 9 voted the same way for this long. Quote Link to comment Share on other sites More sharing options...
Realistbear Posted January 18, 2011 Share Posted January 18, 2011 I'll have a look Sorry, how does this effect whether it is worth buying £s? You haven't addressed the point that if the £ is yielding more than other countries, this will lead to a strong currency. Don't follow that at all. Why do you need to lower your currency? Sounds like mercantilism. Japan is not keeping its currency low - it is at or close to record highs vs the $, £ and Euro. Various attempts to intervene in the market over the last few years have failed. Sprry, don't understand that either. Why would the IMF pull our AAA+ rating? And are we rated by the IMF? Our rating is dependant on our ability to service the debt, which would be dictated ultimately by fiscal and not monetary policy. IMF areinfluential in the credit markets. The only reason they raised us from AAA negative to AAA improving was they believed Dave had a plan. And any plan was thought to be better than New Labour's lack of a plan. A lower currency helps exports which is why the US and China are competing with each other in devaluation stakes. Japan have nowhere to go but up and if they raise rates the Yen will really start to take off. It is low at present as they have no IR hikes in thepipeline--that is, low to whetre they would be if they hiked--which they dopn't need to at present. The yields on £ are extremely high compared wiht the US and, I suppose the EZ. But high yields may lead to lower bond prices which will happen if IR are not raised. Lower bonds will force IR up whether Merv remains vigilant or not. The Catch 22 is based on our housing market--the lynch pin of our entire economy. Everyting depends upon it including the banksters financial future. Higher IR from the BoE will protect our bonds but lead, in due course, to a collapse in housing and exports which will in turn bring £ down. See the Bloomberg article on this--it gives reasons why ST £ is strong but longer term its a sell. Quote Link to comment Share on other sites More sharing options...
R K Posted January 18, 2011 Share Posted January 18, 2011 Going to get even more 'interesting' when China falls over. My guess is Merv will start raising just as we have another commodities bust. Quote Link to comment Share on other sites More sharing options...
cica Posted January 18, 2011 Share Posted January 18, 2011 (edited) Hugh Pym Chief economics correspondent, BBC News This inflation rise has come as quite a shock. Edited January 18, 2011 by cica Quote Link to comment Share on other sites More sharing options...
Realistbear Posted January 18, 2011 Share Posted January 18, 2011 (edited) Reuters, 9:46, Tuesday 18 January 2011 A surge in oil prices drove British consumer price inflation up far more than expected in December to an 8-month high of 3.7pc, well above the Bank of England's own forecasts. Merv can remain vigilant--its all down to oil prices and they will temper as the year drags on. Phew--for a moment there I thought we had inflation in the economy. Nothing to see here--move on ladies and gentleman please........................... Edited January 18, 2011 by Realistbear Quote Link to comment Share on other sites More sharing options...
nickincash Posted January 18, 2011 Share Posted January 18, 2011 No it isn't, the 3.7% figure is on a annualised basis not a monthly basis What I meant is that if this monthly rise of over 1% happened 12 times in a row then the annual CPI figure would be over 13%. Quote Link to comment Share on other sites More sharing options...
frenchy Posted January 18, 2011 Share Posted January 18, 2011 White flour is bad for you (the bleaching agents and the refined starch both promote diabetes), switch to wholemeal flour. True, but although it is fine for bread, you can't really bake cakes with wholemeal flour. Also try making pancakes or waffles with wholemeal! I noticed the same anyway (re huge price increase of flour), was buying organic flour (as it contains more "flour") but have now resorted to switching to non-organic bleach pumped with whatever else they use that is white, powdery and cheaper than wheat... (and no I am not talking about cocaine...) Quote Link to comment Share on other sites More sharing options...
Shotoflight Posted January 18, 2011 Share Posted January 18, 2011 This is madness! The VAT rise and the petrol hikes aren't even in these numbers yet! The MPC have completely lost the plot. Mervyn King's going to be getting a letter from me, on paper, first class stamp. First Class stamps increasing from 41p to 45p in April - a 12% rise. Every little helps! Quote Link to comment Share on other sites More sharing options...
Shotoflight Posted January 18, 2011 Share Posted January 18, 2011 First Class stamps increasing from 41p to 45p in April - a 12% rise. Every little helps! sorry, 46p. My bad. Quote Link to comment Share on other sites More sharing options...
koala_bear Posted January 18, 2011 Share Posted January 18, 2011 What I meant is that if this monthly rise of over 1% happened 12 times in a row then the annual CPI figure would be over 13%. The december index compares 1/12 (December 2010 with Dec 2009) + 1/12 (Nov 2010 with Nov 2009)+.... so not necessarily. In order to get +1% in a month you might need a lot of stuff going up by 10%+ in the first month and much lesser amounts in successive months to maintain a 1% MoM increase. The inflationary behaviour over the preceding 23 months has a big impact too, for example the CPI in the last 9 months of 2009 was ~2% (avg.) so as the older data roll out of the index and have been replaced by ~ 3.2% (on avg.) for 2010, higher CPI becomes a self fulfilling prophecy for a while (just a lot longer than the BoE reckons...) Quote Link to comment Share on other sites More sharing options...
Tired of Waiting Posted January 18, 2011 Share Posted January 18, 2011 That's not a little amount over 2% is it ? (Proper) stagflation, here we come. Much later than I had thought, I have to admit. I wrote here a long time ago that we would have stagflation, but I got the timing and intensity very wrong. Yes, we've been having some stagflation, but it's been much milder than I had forecast. What I failed to foresee was that the Dollar and the Euro would fall almost as much as Sterling. Since most of our imports are from this areas, or in these currencies, the imported inflation has been much less than I imagined. Quote Link to comment Share on other sites More sharing options...
rantnrave Posted January 18, 2011 Share Posted January 18, 2011 Will be very interesting to learn how the MPC voted this time with today's news already to hand... Quote Link to comment Share on other sites More sharing options...
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