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Boe Relying On 20% V A T As A Deflationary Tool

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All this talk about VAT being a short term boost to inflation.

Is the subtext that in the longer term, VAT is deflationary?

Serious suggestion BTW...

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Higher VAT is deflationary long term. But I doubt that either

the BOE can wait that long or that it's deflationary enough to dampen what's already in the system.

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All this talk about VAT being a short term boost to inflation.

Is the subtext that in the longer term, VAT is deflationary?

Serious suggestion BTW...

I guess that if you consider inflation to be the rate at which prices are increasing then obviously it will have an immediate affect on inflation, but that's it. I think that after a year the effect will have fallen out of the equation they use to measure the annual rate of change of prices. I guess you could consider it to be deflationary when this happens.

If you consider inflation to be the amount of money in the economy then I guess it makes little difference - it just takes money from the private sector and transfers it to the government, which then goes and spends it on stuff.

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By this argument, any inflation is 'deflationary' if it removes demand from the economy. i.e all inflation is deflationary if it is not wage inflation. Language, don't you love it. :D

EDIT: and apparently we're getting a lot of deflation at the moment - perhaps the deflationists were right.

I think you are spot on.

My prediction is we will have a couple of years of high inflation. Come late 2012 - mid 2013, the system (people) can bear no more and we end up Japanese style, big time. No amount of IR fiddling will do any good then.

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All this talk about VAT being a short term boost to inflation.

Is the subtext that in the longer term, VAT is deflationary?

Serious suggestion BTW...

Anything that gets money back into HMG BoE account is deflationary. Anything that gets out from there is inflationary.

With HMG racking maybe another £13bn on the VAT but continue to deficit spend £149bn, the inflationary tide isn't going to turn..

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Anything that gets money back into HMG BoE account is deflationary. Anything that gets out from there is inflationary.

Thankyou, that is how I understand it.

With HMG racking maybe another £13bn on the VAT but continue to deficit spend £149bn, the inflationary tide isn't going to turn..

That's a good point.

But there is deleveraging elsewhere in the economy too...

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Doesnt adding VAT make sense from a 'rebalancing the economy' mantra. Ie diversifying away from consumption and toward production.

Yes, we know its regressive, but given socialist Sweden has a 25% VAT rate and many US red states just 5-10% doesnt tell us much about equality in itself.

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I believe that inflation could be controlled by taxes rather than interest rates, although to do this you would need a strong willed govt that didn't blow money on vanity projects.

However the negligible chance of finding any politicians who could run a country in this way ensures this is just a theoretical concept that probably works on paper but not in reality.

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I believe that inflation could be controlled by taxes rather than interest rates, although to do this you would need a strong willed govt that didn't blow money on vanity projects.

However the negligible chance of finding any politicians who could run a country in this way ensures this is just a theoretical concept that probably works on paper but not in reality.

Very true!

(But not a reason why they won't try it).

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All this talk about VAT being a short term boost to inflation.

Is the subtext that in the longer term, VAT is deflationary?

Serious suggestion BTW...

This particular VAT rise is inflation neutral as far as I can see, as it was the same as the VAT rise last year.

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Higher pricing will lead to reduced volumes. Reduced volumes for retail mean they need to sell those fewer items at even higher markups to meet the bills, espeially if those bills are themselves rising or in the case of rents being kept artificially high).

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Doesnt adding VAT make sense from a 'rebalancing the economy' mantra. Ie diversifying away from consumption and toward production.

Yes, we know its regressive, but given socialist Sweden has a 25% VAT rate and many US red states just 5-10% doesnt tell us much about equality in itself.

If you want people to produce, it is just aboiut the worst tax. The clue is in the name

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By this argument, any inflation is 'deflationary' if it removes demand from the economy. i.e all inflation is deflationary if it is not wage inflation. Language, don't you love it. :D

Brilliant - someone call the TV 'everything is really OK' economics pundits and the deflationists, they need a new mantra as "if you strip out all the inflationary factors, there isn't really any inflation" is starting to get a bit old and tired ... :lol:

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HMRC banks with RBS I believe.

Actually, it is with Citibank. American government backed bank is safer than anything else I suppose...

083210

Sortcode083210Account12345678IBANBankCITIBANK NABank BICBranchHmrc Direct TaxesBranch BICAddressC/O Citi Citigroup CentreTownLondonPostcodeE14 5LBPhone020 75005000

But you get what I mean - anything that private sector can spend is inflationary, anything that gets frozen away by the HM government is deflationary.

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By this argument, any inflation is 'deflationary' if it removes demand from the economy. i.e all inflation is deflationary if it is not wage inflation. Language, don't you love it. :D

EDIT: and apparently we're getting a lot of deflation at the moment - perhaps the deflationists were right.

IMO, VAT will boost the indexes like CPI, but it will decrease demand too.

Do the price indexes (CPI/RPI) reflect the quantity of transactions well, I wonder?

Unless wages increase, I would imagine that most people have to cut back when prices go up => less demand/spending.

EDIT: Additionally, over time, spending habits should be reflected in the new basket of cheaper goods. This would appear as if inflation was falling, when in fact, peoples spending habits were instead.

I'm not saying it is easy to measure - food has certainly got cheaper over the years, as have clothes etc - but I think the price indexes have their limitations in measuring buying power.

Edited by Traktion

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  • 312 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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