Pound to Euro - Will it affect the inflation?

[suresh786]

Pound to Euro is going down. The things which come from EU will be more expensive and will increase inflation.

Thoughts?

[Wayward]

Yes if the GBP continues to weaken it will put upward pressure on inflation..

[TheCountOfNowhere]

Carney should be in Jail for not raisng IRs IMHO

 

Protecting the wealth of the few while the many go hungry.

Edited August 24, 2017 by TheCountOfNowhere

[kzb]

Bear in mind all nations were trying like mad to devalue their currencies.  We actually succeeded, and they locked it in with an immediate cut in interest rate and more QE.

Before the referendum, these forums were replete with persons concerned about deflation.  Well that is one worry that has gone away.

The system needed inflation to inflate away the debt, so it's working so far.

 

[Freki]

Europeans who do not wish to settle in the UK won't come in or start moving out.

Less pressure on the rental market in London + SE can already be seen, could help trigger people starting selling.

But yeah, the coming holidays in Corsica and French Alps are going to be expensive.

Edited August 24, 2017 by Freki

[Mrs Bear]

Presumably the price of imported food will be affected.  If it results in less Lurpak butter, Danish bacon and German pork on the shelves, I for one will be pleased.  I never buy imported if there's a local alternative, especially not pork and bacon, given the dreadful  conditions pigs are kept in in so much of Europe. 

And I don't know why we have to import so much salad stuff from Holland.  We have the same climate - why can't we grow enough peppers, cucumbers, etc?   

[kzb]

The major purpose of the common market back in the day was to keep food prices up.  This was to protect the way of life of rural France and other countries.

To this end, we have production quotas, import duties etc.  We've had the butter mountains, "denatured" wheat, paying farmers NOT to produce, paying farmers to take land out of production, dumping excess food on 3rd world, thereby putting their farmers out of business, the lot. 

All intentionally designed to increase the price of food for consumers.

Anyhow, it seems to me they could increase interest rates now, if they wanted to.  There seems to be little desire to do this.  So we have to conclude they are happy with inflation as it stands.

[Funn3r]

28 minutes ago, Mrs Bear said:

Presumably the price of imported food will be affected.  If it results in less Lurpak butter, Danish bacon and German pork on the shelves, I for one will be pleased.  I never buy imported if there's a local alternative, especially not pork and bacon, given the dreadful  conditions pigs are kept in in so much of Europe. 

And I don't know why we have to import so much salad stuff from Holland.  We have the same climate - why can't we grow enough peppers, cucumbers, etc?   

Stuff from Denmark, Germany, and Holland is not imported it comes from within the European Union. That's like saying Caerphily cheese is imported because it comes from another country. Obviously I do understand what you mean though, having to be paid for in Euros and I think you are right of course the price will go up. Being killed and chopped up is also not very pleasant for UK pigs either by the way.

Interesting point about Holland I had never considered that. My guess is they have more cheap flat land than we do for their acres/hectares of glasshouses.

[dougless]

8 minutes ago, Funn3r said:

Interesting point about Holland I had never considered that. My guess is they have more cheap flat land than we do for their acres/hectares of glasshouses.

The Dutch have a long tradition of taking market gardening seriously.  It is highly developed with a well coordinated sales and distribution system.  Some of the Dutch agricultural activity happens in Africa where land is plentiful and labour relatively cheap.

[winkie]

Imported prices will increase.....just have to adapt, fewer choices for more people..... isn't inflation supposed to be a good thing, kills the debt?.....the bigger problem is earning capacity.

 

 

[Mrs Bear]

4 hours ago, Funn3r said:

Stuff from Denmark, Germany, and Holland is not imported it comes from within the European Union. That's like saying Caerphily cheese is imported because it comes from another country. Obviously I do understand what you mean though, having to be paid for in Euros and I think you are right of course the price will go up. Being killed and chopped up is also not very pleasant for UK pigs either by the way.

Interesting point about Holland I had never considered that. My guess is they have more cheap flat land than we do for their acres/hectares of glasshouses.

You know perfectly well what I meant - stuff from outside the UK.  

Pigs are reared in better conditions here than in much of Europe.  I will only ever buy British welfare or Red Tractor pork or bacon.  

HOlland is a small country but they have been farming and market-gardening very intensively for many decades. It's one of the very  few things I still remember from O level geography back in the mists of time. 

I wouldn't be surprised if it's the Nimbies here who object to miles of Polytunnels.

I don't know about Holland but you see literally square miles of them in parts of Spain. 

[Houdini]

5 hours ago, kzb said:

Bear in mind all nations were trying like mad to devalue their currencies.  We actually succeeded, and they locked it in with an immediate cut in interest rate and more QE.

Before the referendum, these forums were replete with persons concerned about deflation.  Well that is one worry that has gone away.

The system needed inflation to inflate away the debt, so it's working so far.

 

The system doesn’t need cost inflation, it needs wage inflation to inflate the debt away.

 

and the very last thing that occurs is wage inflation so I would expect things to get worse before they get better

[Digsby]

I don't give a whole lot of credence to this idea in the long run. Sure, the cost of imported goods rise, and sure, we import more than we export, but I think imported goods only makeup a small percentage of goods traded overall, and exports will rise eventually.

I hear people saying "Ah but we import the materials for those exported goods, which will cost more", but if you're importing €10 of materials to construct a widget that you sell for €20, and the pound is at parity with the euro, then you're making £10 profit (ignoring other costs). If the value of the pound relative to sterling halves, then you're making £20 profit. You can knock €5 off the price and still have an improved margin while being more competitive.

Besides, one of the reasons why we import so many raw materials  (minerals in particular, of which we have a fair amount) is that the value of the pound has made them cheaper to import. If a fall is sufficient enough to make mining them economically viable again, then we will do so., and the trade balance will narrow.

Swings and roundabouts, imo.

[Barnsey]

41 minutes ago, Houdini said:

The system doesn’t need cost inflation, it needs wage inflation to inflate the debt away.

 

and the very last thing that occurs is wage inflation so I would expect things to get worse before they get better

Indeed, cost inflation in an easy credit environment is only expanding consumer debt to maintain living standards.

[dugsbody]

6 hours ago, kzb said:

Bear in mind all nations were trying like mad to devalue their currencies.  We actually succeeded, and they locked it in with an immediate cut in interest rate and more QE.

Before the referendum, these forums were replete with persons concerned about deflation.  Well that is one worry that has gone away.

The system needed inflation to inflate away the debt, so it's working so far.

You're being disingenuous. There were more people crucifying the central bankers about the policy of trying to devalue and achieve inflation. I suspect some of those people will have reversed their views now because brexit. 

[jonb2]

39 minutes ago, Digsby said:

I don't give a whole lot of credence to this idea in the long run. Sure, the cost of imported goods rise, and sure, we import more than we export, but I think imported goods only makeup a small percentage of goods traded overall, and exports will rise eventually.

I hear people saying "Ah but we import the materials for those exported goods, which will cost more", but if you're importing €10 of materials to construct a widget that you sell for €20, and the pound is at parity with the euro, then you're making £10 profit (ignoring other costs). If the value of the pound relative to sterling halves, then you're making £20 profit. You can knock €5 off the price and still have an improved margin while being more competitive.

Besides, one of the reasons why we import so many raw materials  (minerals in particular, of which we have a fair amount) is that the value of the pound has made them cheaper to import. If a fall is sufficient enough to make mining them economically viable again, then we will do so., and the trade balance will narrow.

Swings and roundabouts, imo.

D - could you re-explain this please. Thanks.

[“Nasty Piece of work”]

6 hours ago, TheCountOfNowhere said:

Carney should be in Jail for not raisng IRs IMHO.

We saw today Dixons Carphone issue a profits warning because the trashy pound.  The more businesses do likewise, we will see the Government be talked to.  TPTB don't care about the Great Unwashed individual, but do about big business lobbying.  

[maverick73]

2 minutes ago, jonb2 said:

D - could you re-explain this please. Thanks.

EURGBP (Euro / Pound) - Getting more Pounds for each Euro

GBPUSD (Pound / Dollar) - Getting less Dollars for each Pound

EURUSD (Euro / Dollar) - Getting more Dollars for each Euro

The dollar is considered to be the global reserve currency, all transactions (imports / exports) are priced in dollar values.

Any imported items like food, petrol and electrical goods will become more expensive as the Pound weakens. (Pushing up shop price inflation). If the devaluation is sustained, the Pound could see permanently higher prices in the shops. Though if the economy is very weak, underlying inflationary pressures will remain low.

[jonb2]

3 minutes ago, maverick73 said:

EURGBP (Euro / Pound) - Getting more Pounds for each Euro

GBPUSD (Pound / Dollar) - Getting less Dollars for each Pound

EURUSD (Euro / Dollar) - Getting more Dollars for each Euro

The dollar is considered to be the global reserve currency, all transactions (imports / exports) are priced in dollar values.

Any imported items like food, petrol and electrical goods will become more expensive as the Pound weakens. (Pushing up shop price inflation). If the devaluation is sustained, the Pound could see permanently higher prices in the shops. Though if the economy is very weak, underlying inflationary pressures will remain low.

Thanks Maverick - excellent answer - but it was Digsby's post I needed explaining as it did not make sense to me. I could have missed something though.

[dugsbody]

1 hour ago, Digsby said:

I don't give a whole lot of credence to this idea in the long run. Sure, the cost of imported goods rise, and sure, we import more than we export, but I think imported goods only makeup a small percentage of goods traded overall, and exports will rise eventually.

I hear people saying "Ah but we import the materials for those exported goods, which will cost more", but if you're importing €10 of materials to construct a widget that you sell for €20, and the pound is at parity with the euro, then you're making £10 profit (ignoring other costs). If the value of the pound relative to sterling halves, then you're making £20 profit. You can knock €5 off the price and still have an improved margin while being more competitive.

Besides, one of the reasons why we import so many raw materials  (minerals in particular, of which we have a fair amount) is that the value of the pound has made them cheaper to import. If a fall is sufficient enough to make mining them economically viable again, then we will do so., and the trade balance will narrow.

Swings and roundabouts, imo.

I don't think so. There are reasons currencies devalue and countries who experience this generally are on the poorer side. The UK is part of the global economy now and like most countries, rely on comparative advantage. That means we do and always will import the majority of "stuff" (edit below). All hospitals now have to pay more for every piece of equipment they import from fire hydrants to beds to hi-tech scanners or treatment devices, not to mention medicine that may be imported. Even the equipment made locally will rely on imported parts. 

There may be a theoretical scenario where overnight we could halve the currency value, double wages, double our tax take and all would remain roughly the same, but that isn't what this is about. Also, in that situation, as in this, savers are being screwed once again vs those with debt.

edit: I did mean "stuff" in the sense of the word. We export services mostly.

Edited August 24, 2017 by dugsbody

[jonb2]

1 hour ago, Digsby said:

I don't give a whole lot of credence to this idea in the long run. Sure, the cost of imported goods rise, and sure, we import more than we export, but I think imported goods only makeup a small percentage of goods traded overall, and exports will rise eventually.

I hear people saying "Ah but we import the materials for those exported goods, which will cost more", but if you're importing €10 of materials to construct a widget that you sell for €20, and the pound is at parity with the euro, then you're making £10 profit (ignoring other costs). If the value of the pound relative to sterling halves, then you're making £20 profit. You can knock €5 off the price and still have an improved margin while being more competitive.

Besides, one of the reasons why we import so many raw materials  (minerals in particular, of which we have a fair amount) is that the value of the pound has made them cheaper to import. If a fall is sufficient enough to make mining them economically viable again, then we will do so., and the trade balance will narrow.

Swings and roundabouts, imo.

Alright, this has been worrying me in so many ways.

We import about $600-700 billions worth of 'stuff' - most of which is not produced here and there is no way we can produce the vast majority of it.

http://www.bgs.ac.uk/mineralsuk/statistics/criticalRawMaterials.html

http://www.worldsrichestcountries.com/top-UK-imports.html

Since the currency devaluation, and if we continue to use what we did last year - then those imports are going to cost 20% more. We can't mine what we have not got - nor can we suddenly create an aerospace industry for complete airplane delivery. We no longer have North Sea Oil - so now our energy bill is 20% higher as well.

I have no idea how your maths works for producing goods (the second paragraph) - but will simply say, unraveling your example - if the net margin (after materials AND cost of production) is £3.00 - the 20% adjustment means you either pass that on to the consumer (full 20 % inflation) or operate at much lower net profits (still inflation) - no REAL company can survive without profits. How is the company going to pay higher wages when the squeeze is on?

So, as far as imports are concerned, there's a whole load of unavoidable hidden hurt and consequences

[Digsby]

2 hours ago, jonb2 said:

Alright, this has been worrying me in so many ways.

We import about $600-700 billions worth of 'stuff' - most of which is not produced here and there is no way we can produce the vast majority of it.

http://www.bgs.ac.uk/mineralsuk/statistics/criticalRawMaterials.html

http://www.worldsrichestcountries.com/top-UK-imports.html

Since the currency devaluation, and if we continue to use what we did last year - then those imports are going to cost 20% more. We can't mine what we have not got - nor can we suddenly create an aerospace industry for complete airplane delivery. We no longer have North Sea Oil - so now our energy bill is 20% higher as well.

I have no idea how your maths works for producing goods (the second paragraph) - but will simply say, unraveling your example - if the net margin (after materials AND cost of production) is £3.00 - the 20% adjustment means you either pass that on to the consumer (full 20 % inflation) or operate at much lower net profits (still inflation) - no REAL company can survive without profits. How is the company going to pay higher wages when the squeeze is on?

So, as far as imports are concerned, there's a whole load of unavoidable hidden hurt and consequences

I'm not really in a fit state to answer, but you say "no way" - based on what evidence? We have a large supply of fluorspar, for example.

I don't think we could be non reliant on imports of all minerals we need, simply pointing out that we do actually have decent amounts of some if it weren't cheaper to import them.

It wasn't meant to be a particularly well thought out thesis, more of a musing, but yeah let's investigate if you think it worthwhile.

As for the second paragraph, at parity you're buying materials for £10 and selling at £20, after devaluation you're buying at £20 and selling at £40, hence your margin has doubled, because your materials cost 50% of your sale price.

I say "swings and roundabouts" because I reckon it will probably all even out in the long run, the value of our currency does not dictate the value of our economy but vice versa - productivity and resources must surely be the ultimate determinant?

[Fatmanfilms]

7 hours ago, winkie said:

Imported prices will increase.....just have to adapt, fewer choices for more people..... isn't inflation supposed to be a good thing, kills the debt?.....the bigger problem is earning capacity.

 

 

 

The problem with consumer goods like cars, TV's & white goods is that products are priced at the price the ,market will bear. If the exchange rate changes against the seller tough luck, the market will not accept the increase. Bear in mind imported goods did not fall 18 months ago when the £ 1as @1.40 to the Euro. Profits were higher then,theyare lower know. Thats the way the cookie crumbles.

This is clearly correct as the pound has fallen more than 15% yet inflation is way under 3%.

Edited August 24, 2017 by Fatmanfilms
Formatting

[Dorkins]

10 hours ago, kzb said:

The system needed inflation to inflate away the debt, so it's working so far.

It's not working. Inflation only helps debtors if the income stream they are using to service the debt increases with inflation. Wages are falling behind inflation so those debts are not getting easier to service - if anything inflation is making it harder as rising cost of essentials means there is less money left over to service debts.

[giggler000]

19 hours ago, kzb said:

Bear in mind all nations were trying like mad to devalue their currencies.  We actually succeeded, and they locked it in with an immediate cut in interest rate and more QE.

Before the referendum, these forums were replete with persons concerned about deflation.  Well that is one worry that has gone away.

The system needed inflation to inflate away the debt, so it's working so far.

 

That's the zany wacko thing, purpose of devalue is so your more competitive against other currency, exports up, etc. yet if they all do it, who's better off?