Cpi 3.6%, Rpi 3.9%

[roblpm]

Sorry, for a simpleton, can you explain the deflation? Aren't prices still rising just at a slower rate?

and also for another simpleton explain why deflation is good for our cause.

I was always thinking that if inflation was high interest rates would go up and precipitate a crash. I have spoken to a guy who owns 30 houses who told me an interest rate rise would wipe him out. Another 10 years of zirp will suit him fine I think, while the deleveraged among us are stuffed!

[19 year mortgage 8itch]

Sorry, for a simpleton, can you explain the deflation? Aren't prices still rising just at a slower rate?

Prices are higher than this time last year by 3.6%

But prices overall were lower in Jan than a month before in Dec. This however is a normal seasonal trend, the sales innit? Last few years the vat tweaks have distorted the usual seasonal picture.

[crashmonitor]

and also for another simpleton explain why deflation is good for our cause.

I was always thinking that if inflation was high interest rates would go up and precipitate a crash. I have spoken to a guy who owns 30 houses who told me an interest rate rise would wipe him out. Another 10 years of zirp will suit him fine I think, while the deleveraged among us are stuffed!

Think Japan, house prices and debt never eroding.

[Guest_flaps_*]

Thanks for the replies. I couldn't see past my YOY mind set!!

[crashmonitor]

Prices are higher than this time last year by 3.6%

But prices overall were lower in Jan than a month before in Dec. This however is a normal seasonal trend, the sales innit? Last few years the vat tweaks have distorted the usual seasonal picture.

I agree with you, and did make the point that maybe I was getting carried away because of the VAT thing. However, no VAT adjustment two years ago, then 218.0 to 217.9. So the fall is much more precipitous and partly explains Merv's QE panic.

And tbf to indebted homeowners he will do whatever it takes to avoid sub 2% inflation which would leave them f**ked for life with unpayable capital, but at the moment he is struggling looking 12 months out.

Edited February 14, 2012 by crashmonitor

[admann]

I have been monitoring annualised RPI since May 2011 when the new NSI certificates came out, and now that is running at 2.28% and falling fast....

[moneyscam]

I read an interesting analysis which pointed out what had happened this month to the other measures on inflation that the Bank of England and Adam Posen emphasised over the past year to make their case. These went up! Oh Dear!

http://www.mindfulmo...res-adam-posen/

In the year to January, the CPIY rose by 3.6 per cent, up from 2.8 per cent in December. The

CPIY 12-month rate has therefore increased by 0.8 percentage points between December and

January compared with a fall of 0.6 percentage points in the CPI 12-month rate between the same

two months. This large difference is mainly due to the VAT increase in January 2011 to 20 per

cent, which had an impact on the CPI but not the CPIY in January 2011. This is because the CPIY

excludes the impact of indirect taxation (such as VAT) whereas the CPI includes the impact of

changes in this form of taxation. These differences in construction led to a 1-month fall in the CPIY

between December and January 2011 of 1.3 per cent compared with a rise of 0.1 per cent in theConsumer Price Indices January 2012 | 14 February 2012

Office for National Statistics | 12

CPI. These differences in the 1-month change a year ago matter as the changes in the CPI and

CPIY 12-month rates are calculated by comparing the price changes between the latest two months

and the same two months a year ago.

Consumer Prices Index at constant tax rates (CPI-CT)

The CPI-CT is the same as the CPI except that tax rates are kept constant at the rates they were in

the base period (currently January 2011).

In the year to January, the CPI-CT 12-month rate rose by 3.4 per cent, up from 2.6 per cent in

December. The CPI-CT 12-month rate has therefore increased by 0.8 percentage points between

December and January compared with a fall of 0.6 percentage points in the CPI 12-month rate

between the same two months. This large difference is mainly due to the VAT increase in January

2011 to 20 per cent, which had an impact on the CPI but not the CPI-CT in January 2011. This is

because tax rates in the calculation of the CPI-CT are kept constant at the rates they were in the

base period. In January 2011 the VAT rate used in the calculation of the CPI-CT therefore remained

as it stood in January 2010 (the then base period), which was 17.5 per cent. These differences in

construction led to a 1-month fall in the CPI-CT between December and January 2011 of 1.2 per

cent compared with a rise of 0.1 per cent in the CPI. These differences in the 1-month change a

year ago matter as the changes in the CPI and CPI-CT 12-month rates are calculated by comparingthe price changes between the latest two months and the same two months a year ago.

http://www.ons.gov.u...1778_255287.pdf

YoY rates did rise but the monthly ones fell - CPIY -1.3% and CPI-CT -1.2%

Edited February 14, 2012 by moneyscam

[Toto deVeer]

Are these values calculated using heuristics, like the US inflation calculation?

[evetsm]

RPI, CPI both are political measures to be manipulated as required. If they measured asset prices , eg house prices and govt bonds we would have had hyperinflation back in 2004.

[crashmonitor]

I have been monitoring annualised RPI since May 2011 when the new NSI certificates came out, and now that is running at 2.28% and falling fast....

Best thing that could happen for holders is annual deflation, I've got three 15K tranches of those. In deflation you really win because you still get the 0.5% or 1% and no inflation adjusting. -1% deflation would give you a real return of up to 2%.

Edited February 14, 2012 by crashmonitor

[Sibley's Love Child]

Phew, just as well the annual wage inflation has been running well in excess of 4% per annum. Oh, wait, hang on.

[Sour Mash]

and also for another simpleton explain why deflation is good for our cause.

I was always thinking that if inflation was high interest rates would go up and precipitate a crash. I have spoken to a guy who owns 30 houses who told me an interest rate rise would wipe him out. Another 10 years of zirp will suit him fine I think, while the deleveraged among us are stuffed!

Deflation means that the value of cash rises against other things. i.e. Prices fall.

I wouldn't count on the BoE being able to keep interest rates low indefinitely, as they stuff the economy with more and more newly created base money something will give.

What is most likely is another crazy asset bubble - wonder what it will be this time? They say bubbles never reinflate but I reckon that TPTB have done enough to keep the zombified body of HPI partially animated at least in SE England so I wouldn't rule completely rule out another insane bout of HPI led by that area.

Mind you, we could just as easily have an oil or food price bubble. It all depends where the chief beneficiaries of the new money feel that they can get the maximum return on the near-free cash that the authorities have gifted them. Of course, the masses will pay the price quite literally but Merv can always just handwave away the inflation on one-off external factors as it's not like the media will call him out.

[thecrashingisles]

Best thing that could happen for holders is annual deflation, I've got three 15K tranches of those. In deflation you really win because you still get the 0.5% or 1% and no inflation adjusting. -1% deflation would give you a real return of up to 2%.

But in that scenario there isn't much tax benefit and you might as well have the money in an instant access account for the same real return.

[crashmonitor]

But in that scenario there isn't much tax benefit and you might as well have the money in an instant access account for the same real return.

Indeed it would have been a bad choice of savings vehicle, but the fact remains the real value of your investment actually improves in a deflation scenario, but so does any savings account and to a greater extent. I have seen a few articles warning that NS and I may not be the best cash investment going forward. Merv has pretty much staked his reputation on 2% in 12 months time, Ruth Lea said 'I bet you inflation comes down'' on that classic channel 4 news interview with the Saga lady recently posted on this forum. A lot of reputations riding on target 2%, and I am inclined to believe them this time after crying wolf for three years.

Edited February 14, 2012 by crashmonitor

[Sour Mash]

But in that scenario there isn't much tax benefit and you might as well have the money in an instant access account for the same real return.

Assuming that your bank didn't go bust of course. Deflation erodes bank assets whilst their liabilities remain the same. Best to hold physical cash in a deflation.

[R K]

Deflation then (most recent).

Where are the hyperinflationistas?

£325bn of QE and they're still struggling to prevent deflationary forces re-asserting themselves.

The largest source of the temp. inflation being Osborne's (and Darling's) 30% hike of VAT from 15 to 20%.

They need a bigger boat.

[19 year mortgage 8itch]

Indeed it would have been a bad choice of savings vehicle, but the fact remains the real value of your investment actually improves in a deflation scenario, but so does any savings account and to a greater extent. I have seen a few articles warning that NS and I may not be the best cash investment going forward. Merv has pretty much staked his reputation on 2% in 12 months time, Ruth Lea said 'I bet you inflation comes down'' on that classic channel 4 news interview with the Saga lady recently posted on this forum. A lot of reputations riding on target 2%, and I am inclined to believe them this time after crying wolf for three years.

http://www.housepricecrash.co.uk/forum/index.php?showtopic=163628&st=-10

[R K]

[/url]

Faisal Islam @faisalislam Mervyn King letter: "there is a limit to what monetary policy can achieve when real adjustments are required" - new language

Merv - 'over to you Osborne. Done my bit'

https://twitter.com/#%21/faisalislam' rel="external nofollow">

[scepticus]

Agree, it's somewhat of a fudge .... but still surprised it's not more.

Monthly movement must have been negative?

In the global race down, it takes ever more bonds to retired (and therefore even more money to be created) to move rates down by the same amount.

So you need a good deal more QE to get the currency from yielding 0.75% to 0.5%, than you do to get the currency from yielding 1% to yielding 0.75%. The curve is an exponential decay.

Lets define the currency yield as what risk free savings can typically achieve averaged over some set of maturities.

The inflation comes IMO purely from deval versus other currencies which affects imports, and nothing, nada, from the money multiplier.

[neil324]

Merv - 'over to you Osborne. Done my bit'

WOW. Staggering. His speech tomorrow might be interesting.

[57percent]

The inflation comes IMO purely from deval versus other currencies which affects imports, and nothing, nada, from the money multiplier.

I'm confused now.

I would have thought inflation (as measured by a price index and ignoring all the messing around with substitutions, hedonics, exclusions etc) is just a function of the amount of broad money vs the amount of stuff available.

The amount of broad money is a function of narrow money and the amount of debt demanded/supplied.

The currency exchange rates should be reflecting the future predictions of those?

[57percent]

Merv - 'over to you Osborne. Done my bit'

What does he mean by real adjustments?

Not QE as that's monetary and not stimulus as he's already criticised govt debt.

[Dorkins]

£325bn of QE and they're still struggling to prevent deflationary forces re-asserting themselves.

They've barely even started yet. At the moment they're printing about £100bn per year on total government expenditures of £690bn. I think by the time this is over they will be printing most of what the government spends.

['Bart']

Clearly an emergency rate cut and bout of QE is in order to stave off the imminent threat of deflation. Reports of a 56% increase in the wholesale price of muesli just go to prove how great the danger is.

Some HPCers will have seen me about in the wee small hours of the morning. It's because I can't sleep due to my morbid fear of deflation.

My eyes are like poached eggs.

[Warwick-Watcher]

I love this quote:

"Inflation fell significantly in January for the second month in a row, which is good news for family budgets. The Bank of England and other forecasters expect inflation to keep falling through this year, providing additional relief," said a statement from the UK Treasury.

So prices which are still going up provide good news and additional relief? Funny thing is, journalists never pull them up on this stuff.

They don't seem to understand first or second order derivatives like this. Perhaps if we say "prices now only doubling every 20 years, instead of every 17 years" then they could show the public how bad a deal inflation is over the long run.

A bit like dealing with "the deficit" - this is the rate at which we increase the national debt; not the actual amount of debt itself. I wish they'd say "by the end of this parliament we aim to stop borrowing more money ".

:angry: