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Inflation Predicted To Have Slowed After Discounts Buoyed Economy

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http://www.theguardian.com/business/2014/jun/17/inflation-slowed-discounts-economy-rpi-figures

Economists are predicting that supermarket discounts and cheaper airfares helped inflation ease back in May, ahead of the latest prices data, released on Tuesday.

The consumer price index measure of inflation is expected to drop to 1.7% in May from 1.8% the month before, according to the consensus in a Reuters poll of economists. Some see price pressures easing off even further, with inflation down to 1.6%, matching a four-and-a-half year low reached in March.

The forecast is for the retail price index (RPI) inflation measure, which includes housing costs, to hold at 2.5% when the Office for National Statistics releases the latest inflation data at 9.30am.

Any upside surprises – with CPI inflation beating the 1.7% forecast – will intensify speculation that the Bank of England will raise interest rates before the end of this year from their record low of 0.5%.

Interesting that with inflation below target...... we now need higher interest rates, yet with inflation above target we got lower interest rates.

Still I'm sure the BoE know what they are doing.......

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If HPI were included (CPIH), then the figure is a more realistic 2.8%

Annual rate of CPIH was 1.4% in May, lower than CPI.

ONS has Owner Occupier Housing costs rising at just 0.9% p.a. This is supposedly based on a 'rental equivalence' approach, i.e. how much it would cost to rent the OO home if it were let on the open market.

However ONS also has actual rents rising at 2.3% p.a.

The agency has explained this apparent anomaly in the past as being down to housing benefit - private rents are not growing much in the absence of state support.

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Sterling off slightly on the lower than expected print, and gilts recouped some of their losses.

Yield on the 2-year still up on the day though.

I would have thought low inflation would have pushed up sterling because sterling is being eroded at a slower rate. Wonder if the market no longer believes that interest rates will be going up any time soon.

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Prices still going up....wages still going down.

Yeah, how things have changed.

A couple of years ago the MPC would have been debating whether to increase QE because inflation was in danger of staying below target in the medium term.

Now with wage growth still so subdued and an election on the horizon, telling everyone you're determined to raise prices doesn't go down so well with the Bank's political masters (oops, sorry, the BoE is of course totally independent).

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I would have thought low inflation would have pushed up sterling because sterling is being eroded at a slower rate. Wonder if the market no longer believes that interest rates will be going up any time soon.

Lower CPI usually implies softer monetary policy, hence the exchange rate falls (due to expectation of lower interest rates).

It was telling that sterling only sold off slightly and gilts didn't budge much on what was a pretty hefty undershoot on the consensus CPI forecast.

(Sterling has now recovered almost all of the CPI reaction fall against the USD.)

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Yes it is. See London house prices. Wait until that money reaches your doorstep, you'll find out how worthless your fiat is now.

Oh don't be daft. Asset prices are (largely) the inverse of the discount rate. They've ticked back up to where you'd expect in a secular low rate environment.

London is a special case i.e. disconnected from planet UK. Ignore it.

c. 30% of the CPI post election was caused directly by Osborne raising mandated prices. Tuition fees etc. They've dropped out. We're seeing the result of that.

Edited by R K

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There's no consumer price inflation because there's no consumer demand. There's no consumer demand because there's no recovery. Simple as.

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There's no consumer price inflation because there's no consumer demand. There's no consumer demand because there's no recovery. Simple as.

I'm being careful and selective with my personal spending. There's even some branded snacks we're not buying because the ultimate owner of the company is a hedge fund heavily involved in property.

Shop prices fall 1.4% to record thirteenth month of deflation
4 June, 2014 | By Tiffany Holland
Shop prices deflated 1.4% year-on-year, the same rate as recorded in April, making May the thirteenth consecutive month of deflation.
May’s British Retail Consortium (BRC) Nielson Shop Price Index said that prices have been kept low as food retailers compete in the price war and non-food retailers keep value-for-money at the forefront.
Food inflation was unchanged at 0.7% from April, the lowest ever recorded.
Non-food recorded 2.8% deflation in May from 2.7% deflation in April. The category has reported deflation for the fourteenth consecutive month.
BRC director general Helen Dickinson said: “Food inflation remaining at its lowest level since our records began is great news for hard-pressed households as the summer approaches, and confirms that retailers are responding to current conditions by matching attractive offers with those products most in demand at this time of the year.”
Though he wouldn’t admit it, Bernanke met his match in 2011. The consumer balked at attempts to stimulate aggregate demand via inflationary policy of negative real interest rates, and ever since, has been raising real interest rates by reducing inflation through lower aggregate demand. This is perhaps the most unappreciated yet significant market development since the financial crisis.

Rising real interest rates is Bernanke’s worst nightmare. Everything he has worked for in academia and implemented in monetary practice is imploding before his very eyes. Contrary to his assertion in 2002, aggregate demand in the real economy has in fact met the limit of monetary policy, rendering QE’s impact ineffective and obsolete.

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http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/may-2014/stb---consumer-price-indices---may-2014.html

Mosul should help keep things up from hereonin, otherwise we were facing the big D.

The gold bugs and hyper inflationists must be bloody pleased that their prayers have been answered in the form of Islamic terrorists......they can now profit out of the misery.

Edited by crashmonitor

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Price inflation is only low due to the strength of the pound. When they devalue it again, you will see the return of inflation.

Wage inflation is low because the strength of the pound making the cost of labour uncompetitive.

Eventually the job losses will start, the pound will fall and price inflation will pick up.

It's not an economic mirical and it's certainly not different than last time.

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Price inflation is only low due to the strength of the pound. When they devalue it again, you will see the return of inflation. Wage inflation is low because the strength of the pound making the cost of labour uncompetitive. Eventually the job losses will start, the pound will fall and price inflation will pick up. It's not an economic mirical and it's certainly not different than last time.

Meanwhile a bit of energy inflation so we can reward despots and reward those that profit out of gold speculation won't go amiss.

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I note food has fallen 2% over the last three months.......certainly noticed the supermarkets slashing prices on staple such as milk down from 57p to 49p a litre at Tesco. meanwhile the service sector seem to think they are invulnerable........particularly the likes of Greggs and Wetherspoon. Greggs wanged their rock cakes up another 5p today a rise of 10%. I guess they are relying on the feel good factor..........all those rises in housing equity and the public will just stump it up on the feel good factor.

I guess these service sector firms are having a laugh at our expense while we order our latte's. But at least they have been keeping the deflationary wolf from the door.

Edited by crashmonitor

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Yes it is. See London house prices. Wait until that money reaches your doorstep, you'll find out how worthless your fiat is now.

What do you mean by 'wait'? It's already here, they've put out the bunting for it.

http://www.rightmove.co.uk/property-for-sale/property-44820805.html

For the first time in 8 years I really, really, really do not believe the inflation figures. If this is a rising tide, we're going to drown, not float.

Edit: http://www.rightmove.co.uk/property-for-sale/property-30877659.html

Karma, Karma, Karma, Karma, Karma, Comedians.

We come and go, we come and go.

Edited by 7 Year Itch

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To faciltate housing transactions by credit, the money is created. It forms the basis, the bulk of our broader money supply. In the absence of any other buyer, they will create it to protect banks who have lent against those price levels. What you've seen is part of the step towards potential money supply inflation. It is a self reinforcing, self referencing cycle with more apparent negative consequences when it is unwound.

It requires borrowers to keep it going. To get the credit/QE out there, if that's actually want they want, which I doubt. Well only enough to get enough buyers involved to smooth out the crash as it comes. Two sides to the lending equation. Money supply inflation? Not if the asset value side deflates, and lack of lending as it does.. until it does for volume fresh lending.

Owners asking such asking prices, 7YI, just need non-owners to educate them about how property-wealth is an illusion... and non-owners to get everyone together campaigning for a decade of flat prices. :rolleyes:

Or we could just laugh at their asking prices, and watch as MMR kicks in, rates tick up, and pent up real demand has been just about all absorbed now "for a few years" according to Miles Shipside.

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What do you mean by 'wait'? It's already here, they've put out the bunting for it.

http://www.rightmove.co.uk/property-for-sale/property-44820805.html

For the first time in 8 years I really, really, really do not believe the inflation figures. If this is a rising tide, we're going to drown, not float.

Edit: http://www.rightmove.co.uk/property-for-sale/property-30877659.html

Karma, Karma, Karma, Karma, Karma, Comedians.

We come and go, we come and go.

Not surprising there is no money to actually buy consumer stuff if we are having to fork out half a million for what looks like an inter wars social housing unit.

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