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Inflation Rising Globally

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This artical is really interesting.

http://www.economist.com/finance/displaySt...tory_id=4425575

An interesting suggestion is

CSFB is also betting that Britain's inflation rate will rise to 2.8% in September, its highest since 1995 and well above the Bank of England's 2% target.

It seems many base rate are still so low that, with inflation factored in, they are at or below zero! If this is the case then there is still a lot of tightening to be done.

With oil prices rising fast, inflation is starting to rise right around the globe. The Economist believes that this time the central banks will be unable to lower their base rates to lessen the pain, as they did in 2001 when the dotcom bubble burst, because inflation is rising not falling as it was in 2001.

I have said in previous posts Oil is the key.

The socond point it makes is don't let your messures become too removed from reality! You lose control otherwise.

The Economist is ahead to the game, as usual. Interest rates up next year for sure!

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I have said in previous posts Oil is the key.

I have had it wrong all this time – I thought that house prices being to high was the key

But seriously oil prices cannot stay this high – they can and will produce more, so as they reduce the price inflation will actually be reduced.

Depending on whom you listen to this could happen next year?

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2.8% inflation in September? :blink:

I wonder what CSFB know that the BoE don't?!

All I can say is, if these hawkish inflation predictions are proved right, then all bets are off regarding a soft landing for the housing market (unless of course Gordon Clown cycnically moves the inflation goalposts, which he probably will :rolleyes:).

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But seriously oil prices cannot stay this high – they can and will produce more, so as they reduce the price inflation will actually be reduced.

Depending on whom you listen to this could happen next year?

Yes they can stay this high, and even go higher. One group were predicting a spike up to $105, and there was an IMF report knocking around yesterday which was discussing oil at $80.

According to some people, we are at the peak of oil production, or within about 5 years of it. When we hit the peak, then they can't produce more. When we're close to the peak, they can produce more, but only a bit.

If we have a global recession, then oil use will tend to decrease, and so the price might well fall. But when activity picks up again since we're around the peak, the price will rise again, quite dramatically.

Peter.

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Yes they can stay this high, and even go higher.

I agree about peak oil – but we are not there yet, we are pumping more than we can use at the moment. When American stocks are refilled and the slowing global economies reduce their requirements there is no reason for high fuel costs.

I feel this is more likely unless something (new and unknown) interrupts supply.

I cannot wait 5 years for peak oil to cause a crash

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If we have a global recession, then oil use will tend to decrease, and so the price might well fall. But when activity picks up again since we're around the peak, the price will rise again, quite dramatically.

Possible, that is what used to happen but will a global recession be truely global. Remember India and China both have huge numbers of very poor people who do not use any oil yet. These people are going to be working hard to catch up, and even if they never become rich enough to buy a fuel guzzling SUV, they are highly likely to get to the point of being able to turn on an electric light!

I think what will happen is that many in the developed world will find themselves prices out of the car market!

Here is a simple macro economic thought. About ten years ago 20% of the worlds population used 80% of the worlds resources. Now India and China are in the process of changing that to something closer to 70% of the worlds population using 80% of the worlds resources! Guess what will happen!

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Possible, that is what used to happen but will a global recession be truely global. Remember India and China both have huge numbers of very poor people who do not use any oil yet.

And their economies are largely reliant on money from Western nations. When the US, European and UK economies crash and we stop buying cheap DVD players, theirs will too. I've read claims elsewhere that Chinese oil demand is already dropping as prices are simply too high for their income.

In the long run Asia will become self-sufficient economically and probably much richer than the West: but that will take quite a while yet.

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We will get more nuclear power stations – or they will use another resource – peak oil will happen to late for this crash

Nuclear power stations require considerable energy to construct, and to provide them with fuel. The horror of the peak is that it's when you begin to run out of plentiful energy to switch to other resources. Though that's not to deny that people will try to build more nuclear power stations.

I suspect that we do have a few years before the peak, and this coming recession will probably be caused by debt of the hosue variety. However, higher fossil fuel prices will play a contribution. You don't need interest rate rises when your gas prices are going up by 14% and your petrol prices by 10 - 20%,

Peter.

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I suspect that we do have a few years before the peak, and this coming recession will probably be caused by debt of the hosue variety. However, higher fossil fuel prices will play a contribution. You don't need interest rate rises when your gas prices are going up by 14% and your petrol prices by 10 - 20%,

Peter.

There is still no excuse for oil to be above $60 a barrel next year.

Although time will tell if we have more spikes, which I feel are quite likely, I just feel that when oil comes down suddenly inflation will melt away

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Regarding peak oil, with production falls in Iraq and Nigeria combined with the Gulf of Mexico situation the world now has less oil production capacity than it had in July 2005 when production peaked.

There is by no means any certainty that production will not at some point exceed the July 2005 value. But unless there is "hidden" spare capacity somewhere then it simply can not happen right now. The world can not today produce what it produced just 2 months ago.

So, whether of not this is THE peak (probably not), the world is now in a situation where in the short term oil production is less than it was and can not be increased.

As for the extra capacity that OPEC is suppoedly offering, I will believe it when I see it. I very much doubt that they have such capacity and the conditions they have attached to it strongly suggest that this is the case. It's time limited (3 months) and "subject to market demand" - someone has to buy it (to state the obvious!). So realistically it's almost certainly heavy, sour crude that most refineries can't process and/or it's already sitting above ground in storage tanks - hence the time (and therefore volume) limit.

As for prices, I do believe from numerous anecdotal reports that demand is faltering and has been for at least 3 weeks. This doesn't appear to be limited to only one or two countries. So realistically I do think the price will come down somewhat but it could well go higher, much higher, before it does.

Edited by Smurf1976

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There is still no excuse for oil to be above $60 a barrel next year.

Why? I see no reason why it should not be $100 a barrel next year. If you know differently please tell us.

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Why? I see no reason why it should not be $100 a barrel next year.

Why should oil be $100 a barrel next year?

The only obvious reasons I can see are:

1. Yet more hurricanes knocking out yet more production.

2. Bush invading Iran and knocking out yet more production as he has in Iraq.

3. General unrest in the Middle East knocking out most of their production.

Oil at today's prices is probably going to push the world into a recession: why would prices increase further if demand drops?

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Why? I see no reason why it should not be $100 a barrel next year. If you know differently please tell us.

Only my belief that the global slow down will reduce demand they will still be pumping maximum – then suddenly they will find that they have an excess of oil and the price will return to normal amounts.

The only excuse for high cost is supply shortage – and I don’t think we will have that next year (presuming no hurricanes or terrorist attacks)

As a question – what parentage of fuel is used in cars: most cars sold now are diesel and presumably use a 3rd less fuel (a guess but they are good) – I’m sure the answer is a drop in the ocean but if anyone knows

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Economics occasionally collides with every day life, neatly articulating how we got to be here. Western Governments flood the world with cash to stave off a recession. We start to buy stuff-houses, cars, DVDs, holidays. House prices go up first because they aren't influenced by cheap foreign labour. China and India keep pumping out goods and services to meet our demand. Oil as our energy source of choice gets consumed to make and run these goods. The global economic machine is getting hot. We can't stop it or it'll break. We're scared if it keeps going at this rate it will also break. What will slow it down? Perhaps the demand side- housing costs get so high that they consume all the available money, Western countries reduce their rate of new consumers(fertility falls)etc. Or the supply side-oil, comoditiy costs become untenable. Or even worse the unplanned consequences of running the machine at over-capacity-pollution and global warming, conflicts over commodities, conflicts of expectations resulting in war. And all because of an abstract idea- money supply.

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Why should oil be $100 a barrel next year?

It may not.

But we are heading into new territory in that for the first time in the history of the oil industry demand is set to exceed global supply.

Yes high prices will moderate demand in developed countries, but demand is being driven by the developing countries like India and China who both have huge populations. It is likely that the rich in these countries will have the spending power to make up for the losses in demand in the developed world. It is simply a case of numbers. Remember both China and India have their own, rapidly growing consumer basemeasure, potentially in the 100's of millions, and they trade with each other! Their populations are so huge they may not actually need the developed world to drive their economies.

We saw this with Japan in the seventies. The west went into recession thanks to high oil prices, but Japan just kept steaming ahead. Certainly if the developed world goes into recession then India and China will see reduced growth, but I suspect they will keeping growing at impressive paces' by our standards.

If this proves to be the case then demand will stay close to or above the supply capability, keeping prices high.

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I have had it wrong all this time – I thought that house prices being to high was the key

But seriously oil prices cannot stay this high – they can and will produce more, so as they reduce the price inflation will actually be reduced.

Depending on whom you listen to this could happen next year?

The key is not just oil or house prices..

It is any increase in the cost of living.

These increases reduce the available money into other areas of the Economy.

Students paying of high debt for years. Hits the Eonomy.

House prices, higher mortgage repayents.. Hits the Economy.

Massive rises in council Tax, hits the economy.

Fuel Bills.. Hits the economy.

Electricity, water and gas.. Hits the Economy..

at todays prices people are hundreds a month worse of then they were 8 years ago.

The economy gets hit for every person who is hundreds worse of.

What helped the Economy recently..?

Only one thing I can think of and that is increased personal debt helping the economy as the borrowed money is spent into the economy

Now whats hitting the economy..

Increased personal debt..

The Economy is getting hit very hard as we get hit very hard..

You might be able to survive with increased costs.. But those area where you, and millions more are not spending as much.. Those areas will struggle and are struggling..

You want to create a recession.. take hundreds of pounds from everyones availalbe money each month.. and sit back and watch the Economy.. the Hight street..

Watchs it enter a recession..

Thats what we are doing.. Right now.

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Apom,

With you there on that one, now compund the problem by a generation with no stake in housing - will they spend all their money on a myriad of consumer items/refurbs for their rented houses - not a chance. Sudden death for the consumer economy.

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Yes high prices will moderate demand in developed countries, but demand is being driven by the developing countries like India and China who both have huge populations.

Who are being driven by... Western consumer spending.

How are China and India going to continue to grow if we stop buying from them and stop shipping highly-paid (by their standards) jobs out there?

The west went into recession thanks to high oil prices, but Japan just kept steaming ahead.

Largely driven, I would imagine, by Western demand for small Japanese cars to replace their American eight-liter land yachts.

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As a question – what parentage of fuel is used in cars: most cars sold now are diesel and presumably use a 3rd less fuel (a guess but they are good) – I’m sure the answer is a drop in the ocean but if anyone knows

There is a problem with increased diesel use and it is the refineries. The refineries were build 20 and 30 years ago. They are set up to meet the market condition as seen back then. Unfortunately you need to change the structure of the refinery to change the amount of petrol verus diesel produced. I suspect that diesel will rise faster than petrol because diesel supply is even more limited than petrol!!

Sadly we burn a huge percentage of oil, not just in car and trucks, but in power stations as well!

Here is another thought. I stood in my house a couple of weeks ago and looked around me. I could not see a single object that did not in some way owe its prescence to crude oil!! It was either made from oil products, transported or grown using oil derived fertiliser. Everything! In fact even when I ignored transport, it was still very difficult to spot anything that does not require oil. Why? Because many of our chemicals are produced from oil, so you can even include drugs in the oil dependant basket.

And we burn the stuff. :huh: Numpties!

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How are China and India going to continue to grow if we stop buying from them and stop shipping highly-paid (by their standards) jobs out there?

As I said, India and China are developing their own consumer base, and quickly. Certainly if the developed world goes into recession it will hit them, but it will not stop them.

We will continue to buy some of their products, because it is unlikely that we will completely stop trading (at least I hope it is!). Some of the slack created by a slowing developed world will be taken up by their own consumers of whom there are potentially many millions!

We are not the only game in town!

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But seriously oil prices cannot stay this high – they can and will produce more,

They are producing more - Opec has offered all its spare capacity to the market. Yet prices stay above $60/bl.

That is because the extra volumes being produced are, in layman's terms, too low quality.

What they cannot do overnight is build more refining capacity. That will take years. And that is where the problem lies.

So expect prices to keep rising.

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What they cannot do overnight is build more refining capacity. That will take years. And that is where the problem lies.

So crude oil prices will go up because we don't have enough refineries to turn it into anything useful?

Huh?

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So crude oil prices will go up because we don't have enough refineries to turn it into anything useful?

Huh?

Firstly, think of this. Does it matter to you what a barrel of crude oil costs, or does it matter what you pay at the pump for your petrol? If refineries cannot make enough petrol, you will have to pay higher prices at the pump, regardless of how much a barrel of crude costs.

Secondly, to understand how the higher price of products leads to higher crude prices, you have to visualise the whole thing as a unified supply chain. If the value of what's coming out rises dramatically, the value of what you're putting in rises as well.

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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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