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Bo E Statement: Do Not Focus On Short Term Inflation

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http://uk.finance.yahoo.com/news/Don-focus-short-term-tele-3607679813.html?x=0

Don't focus on short-term inflation, says BoE's Paul Fisher
10:41, Tuesday 18 January 2011
The Bank of England must not get too concerned about short-term inflation and set monetary policy for the longer term, Paul Fisher, the BoE's executive director for markets, said in a newspaper interview.
The interview was published shortly before the release of UK inflation data for December which is expected to show consumer price inflation remaining well above the BoE's 2pc target.
"Yes, it's very uncomfortable - inflation is four percent now - but I wouldn't want to go back and change policy," Fisher told the Yorkshire Post.
He reiterated that inflation was being pushed up by short-term factors, notably the rise in VAT sales tax and higher commodity prices.
"We have to look through those short-term things, despite whatever unpopularity comes our way, to try and set the best policy rates for
the medium term
maintaining high house price," Mr Fisher said.

Whatever happens, DO NOT panic. Merv has inflation well under control and its only worse because prices are rising. Otherwise prices would be falling.

Edited by Realistbear

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He reiterated that inflation was being pushed up by short-term factors, notably the rise in VAT sales tax...

So he was blaming it on VAT before the release of the December figures which themselves were before the VAT rise, which can't be blamed anyway as it's negated by last years rise dropping out.

Shameless.

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Let's be honest they won't raise. The big problems will arise 'if' wage demands spiral, it's not temporary and stays high next year, bond markets wake up.

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So he was blaming it on VAT before the release of the December figures which themselves were before the VAT rise, which can't be blamed anyway as it's negated by last years rise dropping out.

Shameless.

A reporter is saying that Merv and the muppets could be heard running around the room making weird clucking sounds as papers and pens were flying around the room and faces with weird expressions kept popping up against the window and going back down again. It was a headless chicken panic party apparently.

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How long have we had inflation and how are they defining short term...

They are defining short term by the length of the long term. And that will all be determined by what happens in the meantime after we have had time to look back and see if the timing was right. :D

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The Bank of England must not get too concerned about short-term inflation and set monetary policy for the longer term, Paul Fisher, the BoE's executive director for markets, said in a newspaper interview.

As if they have the faintest clue what they're doing - apart from wrecking the economy that is.

Edited by billybong

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I give the BOE the benefit of the doubt most of the time, not being as cycnical as some on here ... but 13 months is a long time to dismiss as short term influence. I could understand if a series of independent price events had bumped up prices every few months for a year. It IS feasible, although unlikely. But now that probability is getting smaller and smaller.

How long can this "nah its irrelevant short term events" theory be credible for, in the perception of the masses?

Fair enough House Price Crash si first to be sceptical after 6 months or so, then the population's relatively economically-wise get a bit sceptical (I like to think I'm in this group!) after 9-12 months, but what about the remaining majority of normal people? At what point does the man on the street think the monetry policy is a joke?

Its becoming ripe material for a comedy sketch tbh. I can imagine Ronnie Corbet walking into a shop to buy various inflated items, with Ronnie Barker informing him of a rediculous reason why the price is so high for each item.

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How long have we had inflation and how are they defining short term...

Indeed. At some point, Dec 2010 was part of the medium term...probably at the point that their inflation graph said CPI in Dec 2010 would be 2%.

A review of the past few years would suggest that inflation tends to over-shoot, it would therefore be prudent to over-compensate if you really cared about inflation in the medium term,

Peter.

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Its becoming ripe material for a comedy sketch tbh. I can imagine Ronnie Corbet walking into a shop to buy various inflated items, with Ronnie Barker informing him of a rediculous reason why the price is so high for each item.

"Three candles?"

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They are defining short term by the length of the long term. And that will all be determined by what happens in the meantime after we have had time to look back and see if the timing was right. :D

Are you stating a golden rule there? Or should it be a hypergolden rule?

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Market reaction to the BoE statement:

FTSE 100 6,058.62 +72.92 +1.22%

1 GBP 1.59947

Stocks continue upward climb and pound eases back down. If IR were headed up the reverse would be true. The market does not believe Merv will move from vigilance to action. Neither do I TBH.

Its ST thinking.

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Our policy is to inflate UK out of the debt bubble and to encourage a consumer-powered society ?

Yes AND maintain our number one industry: HPI upon which 70% of our economy, including the banksters business, depend.

If house prices drop badly our economy is finished and off to the IMF we go. 100% sure and guaranteed.

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Market reaction to the BoE statement:

FTSE 100 6,058.62 +72.92 +1.22%

1 GBP 1.59947

Stocks continue upward climb and pound eases back down. If IR were headed up the reverse would be true. The market does not believe Merv will move from vigilance to action. Neither do I TBH.

Its ST thinking.

The FTSE is an index. Rising now shouldn't be so surprising given that the poor performers in the recession were knocked out of the index, or are recovering from a lower cap. The 100 is currently at 2005 cap.

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http://uk.finance.yahoo.com/news/Rate-rises-coming-Households-tele-1676804184.html?x=0

Rate rises are coming. Households should prepare.
..../
The Bank has evaded the issue in the past by arguing that inflation is being caused by one-off events. The same is true to a degree for December. Oil prices shot up and food prices were hit by poor harvests. There’s nothing the Bank can do to bring those costs down and, if anything, a rate rise would be counter-productive by piling misery on woe.
However, the ONS data also showed that core consumer prices inflation rose to 2.9pc from 2.7pc and that the driver of core goods inflation was services in other words there is clear pressure on prices domestically, as well as externally. RPI, the figure traditionally used in wage settlements, also edged up from 4.7pc to 4.8pc piling the pressure companies for larger pay rises, which will consequently fuel inflation. If inflation does start to spiral upwards, savings will be eroded and companies will struggle to borrow at affordable rates. Neither would be good for the country.
On balance, it looks increasingly likely that the Bank will raise rates sooner rather than later perhaps as soon as next month. Some members of the rate-setting Monetary Policy Committee are prepared to move. Andrew Sentance has been voting for a small rise since June. And Paul Fisher told The Daily Telegraph last month:
“I don’t think a change of 25 or even 50 basis points is going to trigger a recession.”
.../
One thing is for sure, though.
Early move or not, economists and the market alike now expect the Bank to raise rates more aggressively than before. The jump in sterling by 1pc against the dollar and the six point increase in 10-year gilt yields to 3.67pc following the inflation data today spoke volumes
. If the economy demonstrates it can cope with austerity in the coming months, expect rate rises to come thick and fast. ABN Amro is now forecasting rates of 1.25pc by the end of the year. But the big moves are unlikely before the second half of the year, as moving too soon could prove devastating.
Whatever way you look, though, there is no escaping the message from the inflation data. Rate rises are coming, and households should prepare.

Game up Merv? Just let house prices go lad, it will be better for us all in the long run, you know it makes sense.

Edited by Realistbear

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Let's be honest they won't raise. The big problems will arise 'if' wage demands spiral, it's not temporary and stays high next year, bond markets wake up.

Rail unions have rejected a 5.2% (RPI+0.5%) deal for 10,000 staff because it would mean making a commitment to no strike action around the Olympics. I work for NR and last July the middle-senior managers were only offered a 0.8% rise (RPI-4.3%), this was pushed through because of a lack of union membership in these grades. As much as I hate to say it, it will pay dividends to be part of a unionised workforce over the next decade.

Network Rail met RMT, UNITE and TSSA on 20 December 2010 in this year's pay process for the negotiations group which covers 10,000 employees from signalling, supervisory, electrical control operators, bands 5-8 and clerical and support within Operations, Customer Services/Projects, Engineering support staff, and national functions.

Network Rail has made it clear that we wanted a two-year deal inclusive of an agreement for ensuring the successful delivery of Network Rail's commitments to the Olympics free of disruption. Both parties agreed that an early resolution to this was desirable.

The Company recognised that the agreement in 2009 reflected the low inflation rate at that time and stated that it was prepared to use RPI as the basis for concluding a multi-year agreement.

The key elements of the offer are:

  • Two-year deal with an increase to base salaries of 5.2% effective from January 2011 (based on November RPI + 0.5%) with a second year increase equivalent to November 2011 RPI
  • Offer subject to reaching an agreement in the New Year which assures that Network Rail's commitments to the Olympic Transport Delivery plan being free of Industrial disruption (strike action or action short of a strike) between the dates of 24 June and 15 September 2012.

The parties will meet again in January and updates will follow in due course.

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