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In Sunday's paper David Smith writes that this week's inflation figures are set to reach 2.7%. A couple of things.

First, Smith, a well-known bull on the HM, says that "the rise, influenced by last month’s surge in petrol prices, may represent the peak in inflation." Wishful thinking, anyone?

Second, at the tag end of this article he says that some economists "point out that the rise in inflation is exaggerated by the chancellor’s switch to the consumer-price index from the old retail-prices index measure, excluding mortgages. On that measure, figures this week will show inflation close to its former 2.5% target."

Correct me if I'm wrong about this, but if the old RPI had been used over the last few years it would have shown inflation going through the roof because of house price rises. The reason why the RPI would now show inflation close to target would be because HP inflation is falling right back. So what Smith is saying is, it was OK to ignore HP inflation when that meant a lower inflation figure generally and therefore lower IRs, but now the RPI inconveniently shows inflation over target and rising there is an argument for ignoring it and focusing on the old CPI!

Is this as gobsmackingly stupid as it seems, or is it me?

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In Sunday's paper David Smith writes that this week's inflation figures are set to reach 2.7%. A couple of things.

First, Smith, a well-known bull on the HM, says that "the rise, influenced by last month’s surge in petrol prices, may represent the peak in inflation." Wishful thinking, anyone?

Second, at the tag end of this article he says that some economists "point out that the rise in inflation is exaggerated by the chancellor’s switch to the consumer-price index from the old retail-prices index measure, excluding mortgages. On that measure, figures this week will show inflation close to its former 2.5% target."

Correct me if I'm wrong about this, but if the old RPI had been used over the last few years it would have shown inflation going through the roof because of house price rises. The reason why the RPI would now show inflation close to target would be because HP inflation is falling right back. So what Smith is saying is, it was OK to ignore HP inflation when that meant a lower inflation figure generally and therefore lower IRs, but now the RPI inconveniently shows inflation over target and rising there is an argument for ignoring it and focusing on the old CPI!

Is this as gobsmackingly stupid as it seems, or is it me?

;)

David's been running uphill with his inflation arguments for a while now... He'd rather we downplayed inflation and concentrated on 'sustained' growth (I guess followed by 'sustained' bust).

To reflect upon his predictive accuracy check out this quote from his own website (www.economicsuk.com) back in January this year...

Will inflation stay low?

Yes. There are two views about inflation. One is that it will take off if spare capacity is used up, particularly in the labour market, unless action is taken to slow the economy. The other, which I tend towards, is that low inflation is now ingrained and that it will take a lot to rekindle it. Britain has had low inflation (averaging 2.5% on the Bank’s former target measure) for 12 years. On the new measure, the consumer price index, inflation will still be below its 2% target at the end of the year, probably at about 1.75%.

All this looks too good to be true, but then Britain’s economy has done better than expected in recent years. It is possible to conjure up scarier scenarios involving a dollar collapse, a dive in house prices, terrorist attacks and huge tax rises. But why worry unnecessarily?

Doesn't really instill you with much confidence as were now were knocking on 2.7%... He'd quite like to blame it all on oil, but didn't dear Mervy say only half the increase could be attributed to oil?...

:D

PS. I use Colgate for bright white teeth...

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Correct me if I'm wrong about this, but if the old RPI had been used over the last few years it would have shown inflation going through the roof because of house price rises.

RPI inflation has been pretty low running at about 1-2% above CPI. The reason is that "House Prices" are not included, I believe. It is mortgage "monthly repayments" that are included, with the fall in interest rates, cheap short terms deals and extended terms making the mortgage repayments look small. So they would NOT have driven up inflation even if we had stayed on the RPI.

The good thing is that the CPI is more sensitive to the price of oil than the RPI so for the moment CPI is to our advantage! :D

Here is a graph based on ONS data.

Cheers

Inflation.jpg

post-1956-1129468434_thumb.jpg

Edited by FTBagain

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First, Smith, a well-known bull on the HM, says that "the rise, influenced by last month's surge in petrol prices, may represent the peak in inflation." Wishful thinking, anyone?

I don't see how last month shows a peak in inflation. Oil prices started to rise in the summer, so the high level of inflation will remain until at least then.

Also, it takes ages for prices to be passed through the system. I work for a food exporter, and it can take up to a year to pass on increases. So, from my sector it could take up to 2 years before inflation falls back down.

When do people think inflation will peak? I expect it to be some time from now.

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RPI inflation has been pretty low running at about 1-2% above CPI. The reason is that "House Prices" are not included, I believe. It is mortgage "monthly repayments" that are included, with the fall in interest rates, cheap short terms deals and extended terms making the mortgage repayments look small. So they would NOT have driven up inflation even if we had stayed on the RPI.

I am not so sure. nationwide data shows there has a huge rise in monthly mortgage repayments as a percentage of take-home wage since 2001.... If they were small, why not leave them in is my argument? It just seems too convenient they were removed just before steep hikes in house prices... furthermore, if lending has gone up to an average of 7-9X salary, surely there has to be a corresponding increase?

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Not stupid, wilful. <_<

I really wish someone like David Smith could cut himself free from the printed media...

http://www.economicsuk.com/blog/

Maybe then he could start to write articles based on what is really happening in the economy, and not simply churn out columns to keep luring the advertising revenue streams from mortgage banks.

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I am not so sure. nationwide data shows there has a huge rise in monthly mortgage repayments as a percentage of take-home wage since 2001.... If they were small, why not leave them in is my argument? It just seems too convenient they were removed just before steep hikes in house prices... furthermore, if lending has gone up to an average of 7-9X salary, surely there has to be a corresponding increase?

They have it both ways, first they say the impact of inflation is limited because it hasn't shown up in the income data, hence we have no wage-price spiral like the 70's to worry about, in fact real incomes have actually fallen in the private sector due to increased taxation, and they are constrained by the lack of bargaining power, the threat of outsourcing, foreign imports and abundant migrant labour. Therefore inflation will stay low and so will interest rates hence no crash, they would have us believe.

Yet what argument do the V.I. also use to justify the sustained rise in house prices, yup, higher incomes!

Which one is it?

Also, which is more, a 2% rise in on a £200k home or a 5% rise on a £30k income? So why do they talk about "wage inflation over taking house price inflation leading to increased affordability".

Why doesn't anyone in the press question this B.S. instead of just repeating the same old?

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All this looks too good to be true

If it looks too good to be true, it probably is B)

It is possible to conjure up scarier scenarios involving a dollar collapse, a dive in house prices, terrorist attacks and huge tax rises

Over the next year (and perhaps a bit), I expect at least 3 of those 4 to happen... scary

Edited by beerhunter

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They have it both ways, first they say the impact of inflation is limited because it hasn't shown up in the income data, hence we have no wage-price spiral like the 70's to worry about, in fact real incomes have actually fallen in the private sector due to increased taxation, and they are constrained by the lack of bargaining power, the threat of outsourcing, foreign imports and abundant migrant labour. Therefore inflation will stay low and so will interest rates hence no crash, they would have us believe.

Yet what argument do the V.I. also use to justify the sustained rise in house prices, yup, higher incomes!

Which one is it?

Also, which is more, a 2% rise in on a £200k home or a 5% rise on a £30k income? So why do they talk about "wage inflation over taking house price inflation leading to increased affordability".

Why doesn't anyone in the press question this B.S. instead of just repeating the same old?

Because, with the greatest respect to their ever increasing numbers, journalists do not tend to be the brightest sparks (they're impressionable too) - obviously many exceptions to this but as a generalisation I am sticking to it. Tell, me of all the really intelligent people you know (and have ever known from School onwards) how many are or have become journalists. I have more respect for guest journalism from people who know heir trade or area of expertise - I take all professional journalists work with a pinch of salt. Except Rosie M - her work is top notch consistently....

It's Sunday night and I fancied having a go at something or other.

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  • 302 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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