Inflation Predicted To Have Slowed After Discounts Buoyed Economy

[Ash4781]

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).

Thanks. So is it a problem with the interest rate tool ? Carney has been talking up rate rises but with a view to the data. Does the MPC have different data as Carney had to move market expectations of a rate rise to nearer term. But I guess on form they might do an about turn and expand QE?

[19 year mortgage 8itch]

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.

Kite flyers been on the market 6+months.

The other, the third of a million 2 bed terrace will likely sell quite soon. Similar just rented on that street for £1250ish.

[R K]

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.

Whilst you make the simple point about values and yields, you fail to comprehend the wider ramifications.

EDIT: Over 1 million Londoners net have left London for other parts of the UK in the last 20 years. They have taken their ill gotten gains and outbid the locals all over the country before they themselves get the benefit of that 'new' money.

I recall Savills celebrating central London house price increases as a 'Champagne Tower' of wealth rippling out to outer areas of London and beyond. I don't think they quite realised how true it was in so many wider senses.

No. It's a very complicated point about asset prices & yields which you fail to comprehend which is why you and so many other people are being consistently wrong footed.

Forget London prices - they're largely driven by cash transfers not credit creation.

Focus on non-London prices and you'll see that all that's happened is that the credit easing has refloated nominal prices back towards where they were before the collapse in the derivatives bubble.

In other words prices have 'normalised' for the secular change in the real interest rate (London oligarch cash transactions aside - red herring).

It probably means we're still in the early phases of the next credit cycle.

You'll need to get to grips with this matey. Everything you think is going to happen, probably ain't.

[FreeTrader]

Where do you source that 2.3% from FT?

ONS spreadsheet can be accessed from this page:

http://www.ons.gov.uk/ons/publications/re-reference-tables.html?edition=tcm%3A77-323585

Table 24 shows the percentage change over twelve months. Actual rents for housing are on row 58, OO housing costs row 60. Table 23 gives the actual indices.

[winkie]

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

Prices only go up if you buy into what is going up......

[FreeTrader]

Thanks. So is it a problem with the interest rate tool ? Carney has been talking up rate rises but with a view to the data. Does the MPC have different data as Carney had to move market expectations of a rate rise to nearer term. But I guess on form they might do an about turn and expand QE?

I think QE's becoming a bit of a busted flush in the policy debate Ash. At one time the question was "will QE lead to high inflation?" and the answer thus far appears to be no.

Now the question increasingly being asked is "does QE add to wealth inequality?" to which the answer appears to be an almost unequivocal yes - even admitted by the policymakers themselves.

Central bankers have become quite sensitive to accusations that they're lining the pockets of the wealthy, and now they've begun to argue that these wealth effects will unwind when monetary stimulus is removed.

Politically, more QE is a tough sell in the current climate (in the UK at least).

[wonderpup]

Forget London prices - they're largely driven by cash transfers not credit creation.

But all the people who would have bought in london via credit then take that credit and inflate the outlaying areas, which then displaces those lower down the food chain who then take their credit and buy a bit further out again.

So it's not quite true to say that a massive cash rock dropped into the central London market will not cause a ripple of HPI to spread outward as those priced out in the center are forced to move further out to find an 'affordable' house thus displacing the locals who do the same ect.

So London prices do create a field of expanding HPI that expands outwards and impacts across a wide area.

[FreeTrader]

Meanwhile, in the US:

Consumer prices rise sharply again in May

WASHINGTON (MarketWatch) - U.S. consumer prices rose sharply in May for the second straight month and the rate of inflation over the past year reached its highest level since fall 2012, an upward trend that could worry the Federal Reserve unless it abates soon. The consumer price index jumped 0.4% last month on a seasonally adjusted basis, the Labor Department said Tuesday. In the past 12 months, consumer inflation has climbed 2.1%. Just eight months ago, inflation was running at just a 1.0% pace.

In May, energy prices rose 0.9% and food prices climbed 0.5%, with most major categories showing an increase. The core CPI, which exclude volatile food and energy costs, rose by 0.3%, the biggest gain since August 2011. Economists surveyed by MarketWatch had expected both the overall and core CPI to increase by 0.2% last month. Real or inflation-adjusted hourly wages, meanwhile, fell 0.2% in May as the cost of consumer goods outraced the rise in worker earnings.

Real wages have actually fallen 0.1% in the past 12 months, suggesting that Americans have little ability to increase spending and thereby boost the economy.

http://www.marketwatch.com/story/consumer-prices-rise-sharply-again-in-may-2014-06-17?link=sfmw

[Democorruptcy]

I think QE's becoming a bit of a busted flush in the policy debate Ash. At one time the question was "will QE lead to high inflation?" and the answer thus far appears to be no.

Now the question increasingly being asked is "does QE add to wealth inequality?" to which the answer appears to be an almost unequivocal yes - even admitted by the policymakers themselves.

Central bankers have become quite sensitive to accusations that they're lining the pockets of the wealthy, and now they've begun to argue that these wealth effects will unwind when monetary stimulus is removed.

Politically, more QE is a tough sell in the current climate (in the UK at least).

To combat the accusations of wealth inequality Osborne decided make more people feel better off by inflating a housing bubble UK wide. Once he has more people "on board" QE could resume?

[Ash4781]

Kanter Worldpanel 0.8% 12 weeks to 22June lowest in 8year survey history. Tesco poor market share numbers. Good for household budgets but not for CPI...

[Sour Mash]

To combat the accusations of wealth inequality Osborne decided make more people feel better off by inflating a housing bubble UK wide. Once he has more people "on board" QE could resume?

If they don't address the structural deficit and the 'recovery' continues, they'll have to use QE to keep the cost of government borrowing affordable (with the knock on effect of repressing interest rates), as there will be plenty of alternative avenues for capital holders to invest in.

And if the economy collapses, QE will again have to be used to print money to be pumped into the system.

Once you start printing money, you can't stop.