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Bo E: Inflation Will Be "well Below" 2%

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http://www.bloomberg.com/news/2011-01-21/bank-of-england-s-posen-sees-u-k-inflation-slowing-well-below-2-target.html

Bank of England's Posen Sees U.K. Inflation Slowing `Well Below' 2% Target
By Svenja O’Donnell and Simon Kennedy - Jan 21, 2011 3:23 PM GMT
Bank of England policy maker Adam Posen dismissed the recent burst of inflation as temporary, indicating he may keep pushing for more stimulus to aid the economic recovery.
“In terms of underlying U.K. inflation, driven by domestic forces, my position is unchanged,” Posen said in an interview in his office in London today. “Inflation will be well below” the bank’s 2 percent target, he said, citing spare capacity and the likelihood that budget cuts will hurt consumer spending.

If unemployment grows and people start spending a lot less I can see how recession will return with a vengeance. If the EU join in and slip into recession demand will tank and it is easy to see how prices will follow suit. In such a scenerio, houses will already be tanking which means an IR hike is not going to happen.

Edited by Realistbear

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The connection that the mainstream press has never been able to make is that the Bank of England does NOT make Forecasts. Instead the Bank of England quarterly inflation forecast reports are nothing more than ECONOMIC PROPGANDA, that virtually always converge towards the Bank of England achieving its 2% Inflation target in 2 years time, despite the fact that historical analysis shows that the Bank of England FAILS in achieving its 2% target 96% of the time.
The Bank of England's most recent Inflation Report (November 2010) now forecasts UK CPI Inflation to target an early 2011 peak of 3.5% before inflation falls to below 2% CPI by the end of 2011 to target a rate of approx 1.7%, and for inflation to remain well below 2% into the end of 2012, therefore supporting the Bank of England's persistent view that everyone should focus on the Deflation threat and ignore high inflation during early 2011 so as the Bank of England can continue to keep interest rates well below the real rate of inflation for the purpose of funneling savers and tax payers cash onto the balance sheet of the bailed out banks.

The 2010 Bank of England Inflation reports clearly illustrate the persistent trend as was the case for virtually every preceding year in that the Bank of England ALWAYS FORECASTS SUB 2% INFLATION in 2 YEARS TIME.

The Bank of England wastes millions of pounds each year on producing worthless forecasts, the Coalition Government should save this money by instructing the Bank of England to scrap its economic forecasting units.

Clearly the Bank of England relies on the gold fish memory of the mainstream press as the BoE seeks to revise inflation forecasts every quarter to always push forward sub 2% to two years forward, which is nearly always preceded by a trend to below 2% one year forward. In reality the quarterly inflation reports are just propaganda aimed at psychologically managing the populations expectations on the economy and inflation in the direction of where the BoE wants it to be, as the alternative would be to make the BoE's job harder.

For instance if the Bank of England had stated that UK Inflation would be above its 3% target throughout 2010 then that would have ignited a wage price spiral that would have made the Bank of England's job at controlling inflation significantly harder, therefore it is much more convenient for the Bank of England to be seen to be wrong in its inflation forecasts than to attempt to accurately publicise probable inflation expectations. For instance if the Bank of England was not expecting high inflation during 2010 and beyond then why did the Bank of England's own staff pension fund switch from being 30% invested in inflation index linked government bonds to 70% during late 2009 ?

More here - The Real Reason for Bank of England's Worthless CPI Inflation Forecasts

As expected, the Governor of the Bank of England continues with the mantra of ALWAYS temporarily high inflation even as the UK stands at cusp of a further spike higher in UK's Inflation Mega-trend towards breaking above CPI 4%. The facts are that the evidence clearly shows that the Bank of England HAS LOST CONTROL of INFLATION! (Perhaps it was never in control of inflation in the first place, just lucky to have benign economic conditions during the early Labour years).

http://www.marketoracle.co.uk/Article25637.html

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If they raise rates the housing market is doomed in a very serious way.

That said, the banks may do it for them as we have seen today. In the end, the market just takes over.

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http://www.bloomberg.com/news/2011-01-21/bank-of-england-s-posen-sees-u-k-inflation-slowing-well-below-2-target.html

Bank of England's Posen Sees U.K. Inflation Slowing `Well Below' 2% Target
By Svenja O’Donnell and Simon Kennedy - Jan 21, 2011 3:23 PM GMT
Bank of England policy maker Adam Posen dismissed the recent burst of inflation as temporary, indicating he may keep pushing for more stimulus to aid the economic recovery.
“In terms of underlying U.K. inflation, driven by domestic forces, my position is unchanged,” Posen said in an interview in his office in London today. “Inflation will be well below” the bank’s 2 percent target, he said, citing spare capacity and the likelihood that budget cuts will hurt consumer spending.

If unemployment grows and people start spending a lot less I can see how recession will return with a vengeance. If the EU join in and slip into recession demand will tank and it is easy to see how prices will follow suit. In such a scenerio, houses will already be tanking which means an IR hike is not going to happen.

Given that we are importing all this inflation, I don't see how our domestic situation can avoid it entirely. It is Boe that has cited this as the reason for not raising rates since it will not dampen inflation from elsewhere. Most people think inflation is gathering pace and wage push/strikes will soon follow. We have had many dire economic moments in the past 50 years, which included very high inflation. So I cannot agree that he will be right. He might be, but most would not agree just now.

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Given that we are importing all this inflation, I don't see how our domestic situation can avoid it entirely. It is Boe that has cited this as the reason for not raising rates since it will not dampen inflation from elsewhere. Most people think inflation is gathering pace and wage push/strikes will soon follow. We have had many dire economic moments in the past 50 years, which included very high inflation. So I cannot agree that he will be right. He might be, but most would not agree just now.

Currencies

Currency Pair Price Change

GBP to USD 1.6006 +0.0104

GBP to EUR 1.1799 -0.0065

GBP to JPY 132.1991 +0.2553

GBP to TRY 2.5186 +0.0006

GBP to THB 49.1263 +0.4267

WE can avoid raising prices because we have the strongest currency in the world. Because the Koalishon has effectively ended our debt probelms and are returning the country to full growth and much lower unemployment* there are no prospects of inflation or weakness in our economy. The $, Euro and Yen may all sink but we are well placed to weather the global storm due to a bouyant property market and the sound policies of Brown that are being carried on by the Koalishon.

* http://www.forexrate.co.uk/news/uk-jobless-claims-signals-worsening-labour-market/ (not)

Edited by Realistbear

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http://www.bloomberg.com/news/2011-01-21/bank-of-england-s-posen-sees-u-k-inflation-slowing-well-below-2-target.html

Bank of England's Posen Sees U.K. Inflation Slowing `Well Below' 2% Target
By Svenja O’Donnell and Simon Kennedy - Jan 21, 2011 3:23 PM GMT
Bank of England policy maker Adam Posen dismissed the recent burst of inflation as temporary, indicating he may keep pushing for more stimulus to aid the economic recovery.
“In terms of underlying U.K. inflation, driven by domestic forces, my position is unchanged,” Posen said in an interview in his office in London today. “Inflation will be well below” the bank’s 2 percent target, he said, citing spare capacity and the likelihood that budget cuts will hurt consumer spending.

If unemployment grows and people start spending a lot less I can see how recession will return with a vengeance. If the EU join in and slip into recession demand will tank and it is easy to see how prices will follow suit. In such a scenerio, houses will already be tanking which means an IR hike is not going to happen.

Adam Posen is an idiot, he has been singing the same song for 2 years and has always been wrong, but never admitted it.

One thing is guaranteed, inflation will not go below 2%, the reasoning to this logic, Adam Posen has always been wrong.

The reason I say he is an idiot as if the BOE continue to to churn out lousy propaganda that is not the truth, it will cause huge damage to the country and us, as investors will totally loose faith as they are already starting to do.

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He wrote a book with bernanke on inflation targeting.

Says it all.

A FED stooge. The US needs others following their myopic script to have any chance of getting away with it. Bailouts for the banks, big bonuses, a bought and paid for political system - everybpdy else pays.

It is the way it is done in the US and increasingly here.

Edited by OnlyMe

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It will be interesting to hear what Sentance says in Monday as their views are completley opposing.

What I dont get is that early last year Merv said that if inflation expectations start to rise it will be '"very costly" to bring it back under control. Well they have jumped quite significantly since then and inflation itself has followed yet they do nothing. surely he is taking a big risk, by his own admission.

What would damage the economy more, a gradual off low rates or a sharp aggressive rise further down the line?

Edited by Pent Up

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http://www.bloomberg.com/news/2011-01-21/bank-of-england-s-posen-sees-u-k-inflation-slowing-well-below-2-target.html

Bank of England's Posen Sees U.K. Inflation Slowing `Well Below' 2% Target
By Svenja O’Donnell and Simon Kennedy - Jan 21, 2011 3:23 PM GMT
Bank of England policy maker Adam Posen dismissed the recent burst of inflation as temporary, indicating he may keep pushing for more stimulus to aid the economic recovery.
“In terms of underlying U.K. inflation, driven by domestic forces, my position is unchanged,” Posen said in an interview in his office in London today. “Inflation will be well below” the bank’s 2 percent target, he said, citing spare capacity and the likelihood that budget cuts will hurt consumer spending.

If unemployment grows and people start spending a lot less I can see how recession will return with a vengeance. If the EU join in and slip into recession demand will tank and it is easy to see how prices will follow suit. In such a scenerio, houses will already be tanking which means an IR hike is not going to happen.

Infaltion is driven by the overheated bubble in Asia. IR will have to rise or international investors will abandon in the UK

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I used to give the BoE's inflation forecasts the benefit of the doubt, but the latest forecast was simply ridiculous. The increase in student tuition fees alone in October 2012 will add 1% to 2% to CPI. The education component of CPI, mainly university tuition fees, is weighted at a bit more than 2% of the index, and those fees are scheduled to go up by 100% to 200% for the majority of students. When fees went up a couple of years ago, CPI saw a similar jump.

The latest BoE forecast, issued after the policy had been officially adopted, shows no increase in CPI in Q4 2012 from the previously issued forecast which was produced before the increase in tuition fees was finalized. The forecasters must know that their forecast is wrong, and the members of the MPC must also know that it's wrong. Q4 2012 is the 2 year time horizon that the BoE is supposed to be targeting. They know that CPI won't be 2% then, and when they give press interviews saying that it will be, they're lying.

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Bank of England policy maker Adam Posen dismissed the recent burst of inflation as temporary,..

Recent burst of inflation :o

There's nothing recent about it. For at least 5 years now the CPI has been well above the 2% target apart from 2 short dips for a few months during 2007 and 2009 and apart from the dip during 2009 CPI inflation has been above the 3.0% extreme upper limit since early 2008 the year when IT EVEN REACHED 5% - a period of 3 years that has had an average CPI near or above the extreme upper limit.

It's a fair bet that in almost every quarterly report during those 5 years they've either actually claimed or implied something like “Inflation will be well below” the bank’s 2 percent target. When will WILL be below 2% become IS below or even AT 2%. Sometime never with the Manana Policy Committee.

Credibility :lol::lol:

Edited by billybong

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I wonder if it really matters whether the BoE rises IRs or not?. Seems to me that the practical implications felt by the public are only w. r. t. current mortgage rates which are largely independant of the BoE's rate. They've already priced it in to their fixed retes in any case. The only benefit is the message it sends.

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I wonder if it really matters whether the BoE rises IRs or not?. Seems to me that the practical implications felt by the public are only w. r. t. current mortgage rates which are largely independant of the BoE's rate. They've already priced it in to their fixed retes in any case. The only benefit is the message it sends.

A significant chunk of people - especially BTLers - have long term/lifetime base rate trackers. It lets them hang on in there.

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A significant chunk of people - especially BTLers - have long term/lifetime base rate trackers. It lets them hang on in there.

I remember seeing that only 3% of mortgages have an interest rate of <1% so there aren't many of us about B)

EDIT just to add I'm not a BTL but the 3% referred to all mortgages

Edited by gf3

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http://www.bloomberg.com/news/2011-01-21/bank-of-england-s-posen-sees-u-k-inflation-slowing-well-below-2-target.html

Bank of England's Posen Sees U.K. Inflation Slowing `Well Below' 2% Target
By Svenja O’Donnell and Simon Kennedy - Jan 21, 2011 3:23 PM GMT
Bank of England policy maker Adam Posen dismissed the recent burst of inflation as temporary, indicating he may keep pushing for more stimulus to aid the economic recovery.
“In terms of underlying U.K. inflation, driven by domestic forces, my position is unchanged,” Posen said in an interview in his office in London today. “Inflation will be well below” the bank’s 2 percent target, he said, citing spare capacity and the likelihood that budget cuts will hurt consumer spending.

If unemployment grows and people start spending a lot less I can see how recession will return with a vengeance. If the EU join in and slip into recession demand will tank and it is easy to see how prices will follow suit. In such a scenerio, houses will already be tanking which means an IR hike is not going to happen.

Some people can't even admit to themselves when they are wrong:

In the article he quotes "The pessimism over euro-zone prospects is probably exaggerated”, yet the Euro with this pessimism is still getting stronger against the pound. Maybe the pound is getting weaker due to the Quantitative Easing that we were all warned about when it happened, yet he wants more quantitative easing. The more money you "print" the more you dilute the currency and the less it is worth. Posen still feels that even with more quantitative easing the pound will recover against the Euro. My 3 year old can see the stupidity here.

He also says that the recent data from the U.K. housing market made him more concerned about downside risks to home prices. High house prices are one of the major factors that got us into this mess and if they don't become affordable, we are going to be in a huge mess. He is basically saying that he wants house prices to go up again to produce a stable economy. The only reason he could want this is so that people would use them as cash machines again and borrow more money against their houses, again he feels that this is stability and secure. You couldn't make this up !!!!

Another beauty is that he said “Underlying wage growth has been nil”, which means that nobody in the UK will be getting a pay rise again, not even the bankers. What data is he reading. Some companies did no pay rises, yet quite a few did rises last year as did the majority of Civil Servants get pay rises. Not only that but wage rises are traditional in April (the start of the new tax year) and employers will be giving pay rises this time round (2 years no pay rise = problems), even Civil Servants have been promised them.

He also states "recent burst of inflation as temporary", there are no bursts, it has been a long drawn out constant, a burst is momentary, like maybe at most a couple of months, we are going on 2 years now. Is he looking at time in planetary terms, maybe he feels that an epoch is just a bump?

Joking aside, this man is delusional, he says something in one sentence and contradicts it later in the same paragraph. Quantitative easing hasn't worked, yet he wants to do more. He is misquoting facts and justifying his decisions on them.

With his comments and his continued incorrect inflation predictions, I feel he should apply for a job at McDonald's emptying the bins as I wouldn't trust him at the cash registers. It also infuriates me that my taxes are being given to an imbecile like this.

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I also forgot another gem he said "One time shock...to commodity prices". Commodities have been increasing at quite a steady and fast rate, and looks like they will continue to rocket. The natural disasters this year and last year, as well as the unexpected freezing weather is continuing to drive up the commodity prices. How is this a one time shock.

Maybe because he is American, he wants England to fail to give America a better chance???

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http://www.bloomberg...w-2-target.html

Bank of England policy maker Adam Posen dismissed the recent burst of inflation as temporary, indicating he may keep pushing for more stimulus to aid the economic recovery.

"In terms of underlying U.K. inflation, driven by domestic forces, my position is unchanged," Posen said in an interview in his office in London today. "Inflation will be well below" the bank's 2 percent target, he said, citing spare capacity and the likelihood that budget cuts will hurt consumer spending.

RB, can I have another Crimbo prediction point?

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where are those charts Lepista took the trouble to post?

should be sent to the BoE.

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I think they are focussing on house prices (and money supply) aren't they so positioning themselves with blinkers on (or overtaken by events). In the past they suddenly switched position and then tended to overdo it in either direction. Interesting to see the minutes when released.

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I think they are focussing on house prices (and money supply) aren't they so positioning themselves with blinkers on (or overtaken by events). In the past they suddenly switched position and then tended to overdo it in either direction. Interesting to see the minutes when released.

prices of things used to be controlled by lending. thats using the interest rate tool.

now its by printing. the interest rate tool is broken.

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Inflation will cause house prices to crash.

Deflation will cause house prices to crash much harder.

Agree. The bottom line for UK Plc is house prices. If they crash badly the banks pick up the hundreds of billions that will be written off--make that the taxpayers will pay--and we will need higher IR to prevent a run on the pound.

Sterling is soaring in anticipation of a series of hikes that will begin in March. If Merv remains vigilant the pound sinks. The market has, IMO, priced in higher rates and the fact that sterling will receive an initial boost followed by a massive sell of later in the year as the economy reacts in a way Merv will be able to say confirmed his views that we cannot raise the rates and expect our house market to remain on a gentle downward trajectory.

Either way they go the market will win the day and the bubbles will have to burst. Merv needs to accept that and look to a future economy that is not reliant on HPI. In order to get there he has to kill the beast and let the poisons come to the surface.

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The problem with Posen is that he keeps getting it wrong but is unable to admit it. He could have made this speech anytime over the last 18 months and each time he would have been wrong! But of course this doesnt matter and he keeps turning out the word temporary and forgetting its meaning.

He had a go recently at using the level of CPI-Y as a way of explaining his views as all his other claims had gone wrong but I notice that one or two more thoughtful economists are pointing out an inconvenient truth for that too.

"So we have a miss-match between theory and reality and an indication that at this time CPI-Y was calculated incorrectly. This leads to the question is it being calculated incorrectly now after a VAT rise? To which the answer is Yes.

This is unfortunate for those who have advanced the theory that we should be looking at CPI-Y because usually they have been those who argue that the VAT increases will not be passed on in full! There is therefore a logical trap in their argument as the more they argue that the full move is not passed on the higher CPI-Y must be.

I have always felt that most of the increase in VAT will be passed on so my suggestion is that the real rate of CPI-Y is probably 2.5% rather than the 2% published yesterday by the ONS."

We will have to see what actually happens but the likelihood is that CPI-Y if measured properly is over the official target too and maybe by a fair bit.

What we need are some better quality economists at the B of E rather than this broken record of one.

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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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