Is the current inflation temporary or persistent.

[14stFlyer]

I voted for persistent unless there is drastic intervention.  Either inflation remains above the 2 % target for 5 years, or interest rates are raised to >5%. 

[BaldED]

4 hours ago, Flat Bear said:

I have noted that all posters (sorry if I have missed anyone who thinks otherwise) on this forum believe the inflation we are seeing is just temporary. They may believe it takes slightly longer tahan the BOE predicts but fundamentally believe it to be temporary or transient in nature.

Am I the only one that thinks this inflation is persistent and in no way temporary?

There are massive problems to tackle in this decade and I simply do not see the big economies tackling it, the UK the worst of the lot. Inflation to persist I don't know, but I do know big economic problems are here to stay for a long time.

[Social Justice League]

People desperate to be 'middle class' by borrowing printy was never going to end well.

It shows us all what a total disaster the western capitalist financial model has been since 1971. 

Continuous growth paid for with printed out of thin air worthless fiat.

Edited August 30, 2022 by Social Justice League
Typo

[Flat Bear]

20 hours ago, 14stFlyer said:

I voted for persistent unless there is drastic intervention.  Either inflation remains above the 2 % target for 5 years, or interest rates are raised to >5%. 

Bailey and the BOE will not change course. There are still people in the US thinking that the FED will suddenly stop increasing rates and then start droping them. Seriously. It looks as if we are heading for mega inflation.

What will the CPI interest rate be one year from now? September 2023. At the rate we are going and without any intervention it will be north of 20% and rising quickly. How high will it go? 25% 30% 50%? Who really knows. There will still be at least a few posters saying it is all temporary.

Just raised prices for the second time this year had a lot of resistance because too high? and no warning. I can tweak about a bit but thats it. Expect to be in a similar position in 5 or 6 months but then we will be well into the recession. You can only cut margins so far. So for everybody in business, keep raising those prices if you want to survive.

[Mandalorian]

On 8/29/2022 at 7:04 PM, Flat Bear said:

You must realize that Russia has nothing to do with this current inflationary cycle and is a very convenient excuse for the masses.

 

Indeed.  Inflation got going before the Russian invasion.

 

Milton Friedman:  'Inflation is always and everywhere a monetary phenomenon'

 

Did people really think that 'stimulus' and furlough was gong to have no negative effects?  Clueless if they did.

Rising prices are a symptom of inflation, not inflation itself.  Inflation refers only to the money supply.  The fact the term has been bastardised into meaning rising prices is the fault of those who should know better.

 

QE money printing went into asset prices rather than general circulation - high inflation but low velocity of money - small rise in prices.

Furlough printed money and stimulus printed money went into public pockets and spent.  High inflation and high velocity of money.  Big rise in prices.

[Mandalorian]

PS "Inflation" (sic) may be transitory* but the resultant higher prices will be permanent.

 

* Spoiler alert.  It won't be.

[A.steve]

On 29/08/2022 at 18:22, Flat Bear said:

Am I the only one that thinks this inflation is persistent and in no way temporary?

I am not clear what you intend the distinction between persistent and temporary to be.  Without clear time frames, it's difficult to give any meaningful answer.

If we interpret 'inflation' as implying the rate... this 'speed of change' might be 'interesting' to study... but it has few real-world consequences.  The integral of the inflation rate over time, however, is extremely important to anyone living through such a period... this defines the change in value of long-term savings... and the value of existing fixed-price contracts for supply.

Consider Diesel.  A couple of years back, it was being sold at £1.10 a litre... then, say a quarter ago... £1.99 a litre... now ~£1.81/litre.  Perhaps £1.10 was an outlier?  Perhaps £1.99 is an outlier?  If we only consider prices from the £1.99 peak, this suggests an annualised inflation rate of about -31.5%... significant deflation.  If we consider prices from the £1.10 trough... this suggests an inflation rate of +32.7% (annualised over 2 years).  From the perspective of diesel prices alone, does this indicate that we are now in an inflationary or deflationary environment?  This seems significant, as a question, because a 1% annualized change in CPI, for many years, was seen as a massive change... requiring accountability for failure to meet targets.  If we look at wholesale commodity prices, there seems to be a lot of volatility... I consider the volatility far more significant than the (short-term average) price itself.

13 hours ago, Flat Bear said:

Bailey and the BOE will not change course.

Nice prediction... Preserved. 🙂 I note that you don't constrain your prediction to a particular time-frame.  When can we next test out your prediction?  What makes you confident of another 0.5% rate rise at the next meeting?

Edited August 31, 2022 by A.steve

[Flat Bear]

17 hours ago, Mandalorian said:

Indeed.  Inflation got going before the Russian invasion.

 

Milton Friedman:  'Inflation is always and everywhere a monetary phenomenon'

 

Did people really think that 'stimulus' and furlough was gong to have no negative effects?  Clueless if they did.

Rising prices are a symptom of inflation, not inflation itself.  Inflation refers only to the money supply.  The fact the term has been bastardised into meaning rising prices is the fault of those who should know better.

 

QE money printing went into asset prices rather than general circulation - high inflation but low velocity of money - small rise in prices.

Furlough printed money and stimulus printed money went into public pockets and spent.  High inflation and high velocity of money.  Big rise in prices.

Yes good points.

Thanks for reminding everyone what inflation really is.

[scottbeard]

11 minutes ago, Flat Bear said:

Yes good points.

Thanks for reminding everyone what inflation really is.

At the risk of just being semantic, words mean what people choose them to mean, and that can change over time - hence why we don't all speak like Chaucer, or why "gay" can mean something very different in 2022 than 1822 etc.

It's not the case that inflation is "really" just increasing the money supply.  Now the word inflation can also correctly be used to describe rising prices.

[Flat Bear]

8 hours ago, A.steve said:

I am not clear what you intend the distinction between persistent and temporary to be.  Without clear time frames, it's difficult to give any meaningful answer.

If we interpret 'inflation' as implying the rate... this 'speed of change' might be 'interesting' to study... but it has few real-world consequences.  The integral of the inflation rate over time, however, is extremely important to anyone living through such a period... this defines the change in value of long-term savings... and the value of existing fixed-price contracts for supply.

Consider Diesel.  A couple of years back, it was being sold at £1.10 a litre... then, say a quarter ago... £1.99 a litre... now ~£1.81/litre.  Perhaps £1.10 was an outlier?  Perhaps £1.99 is an outlier?  If we only consider prices from the £1.99 peak, this suggests an annualised inflation rate of about -31.5%... significant deflation.  If we consider prices from the £1.10 trough... this suggests an inflation rate of +32.7% (annualised over 2 years).  From the perspective of diesel prices alone, does this indicate that we are now in an inflationary or deflationary environment?  This seems significant, as a question, because a 1% annualized change in CPI, for many years, was seen as a massive change... requiring accountability for failure to meet targets.  If we look at wholesale commodity prices, there seems to be a lot of volatility... I consider the volatility far more significant than the (short-term average) price itself.

Nice prediction... Preserved. 🙂 I note that you don't constrain your prediction to a particular time-frame.  When can we next test out your prediction?  What makes you confident of another 0.5% rate rise at the next meeting?

You seem to waffle on about nothing.

I have made it clear what persistent means. Please see scottbeard reply third or fourth post I believe.

You seem to be very confused with the price of an item going up or down and inflation. I have explained this many many times before but I note that Mandalorian has reminded us quite well what inflation is. Just a couple of posts before your own.

Because energy prices are falling slightly in the form of diesel does not mean inflation will be falling. You understand this right? I had expected a fall in the price of diesel and would guess we could still see prices fall slightly more at the pumps (maybe to £!.65?) but am quite certain it will be at £2.00 sometime in 2023. Remember 5p had been deducted in duty and there could be another reduction ahead if Truss decides.

We are entering a slump very quickly. I can see it in my own business and have heard it widely expressed across the construction industry. It is only just starting to be noticed by the smaller SMEs but the larger projects have slowed dramatacly. This will have a temporary downward pressure on prices and we may see a leveling off or possibly a falll in inflation but this will be short lived as prices and inflation continues to rise.

To make it clear for you, I believe we will see high inflation for over 10 years unless there is major intervention in the interim.

As regards Bailey. He has such a deep seated belief that we are in a new era of low interest rates and easy money he will find it emotionally impossible to change course. I would wager he will be gone before the new year, perhaps a lot sooner.

[Flat Bear]

9 minutes ago, scottbeard said:

At the risk of just being semantic, words mean what people choose them to mean, and that can change over time - hence why we don't all speak like Chaucer, or why "gay" can mean something very different in 2022 than 1822 etc.

It's not the case that inflation is "really" just increasing the money supply.  Now the word inflation can also correctly be used to describe rising prices.

Sorry

I have absolutely no idea what you are talking about.

Was Chaucer gay? What relevance does it have.

Edited August 31, 2022 by Flat Bear

[TerryBoi]

[Flat Bear]

2 minutes ago, TerryBoi said:

Did he ever believe what he had said?

[slawek]

On 29/08/2022 at 19:40, Flat Bear said:

Do you think this current inflation will last more than 5 years without very serious intervention.

I have ammended the question to say possibly 5 years for you.

When I say higher inflation I would say 4% plus over the whole period.

5 years is still a long time. The market expects it to be over in a year. 

[Flat Bear]

1 minute ago, slawek said:

5 years is still a long time. The market expects it to be over in a year. 

I don't think 5 years is a very long time in economic terms.

Yes, the BOE thinks inflation will suddenly fall back to 2% by the 1st QTR of 2024.

"The markets" is a difficult one but it does seem they believe, at this time, nothing to worry about here and everything will be OK soon. Sentiment can change very quickly in the markets.

What do you think slawek? Is the inflation we are seeing temporary or persistent? I note you have yet to vote.

[slawek]

12 minutes ago, Flat Bear said:

I don't think 5 years is a very long time in economic terms.

Yes, the BOE thinks inflation will suddenly fall back to 2% by the 1st QTR of 2024.

"The markets" is a difficult one but it does seem they believe, at this time, nothing to worry about here and everything will be OK soon. Sentiment can change very quickly in the markets.

What do you think slawek? Is the inflation we are seeing temporary or persistent? I note you have yet to vote.

5 years is a long time so it is difficult to predict. It all depends when they get really serious about fighting inflation. My guess it will be last at least a few years but it could even be 10 years or longer. They will be forced to rise IRs over inflation rate delaying this as long as possible.  

The market is pricing the future inflation. Average inflation in the US over next 1 and 2 years is expected to be around 3.3%. 

[A.steve]

2 hours ago, Flat Bear said:

Because energy prices are falling slightly in the form of diesel does not mean inflation will be falling. You understand this right?

Obviously I understand that the price of diesel is only a small component to inflation metrics like RPI and CPI... However, there are many potentially relevant metrics for inflation... each subtly different... and those differences are relevant.  If one were to implement a specialist inflation metric - which gave a high weighting to the price of diesel - then, by this measure, inflation would be negative when prices of diesel fall substantially.

I do understand your opinion... though I don't have confidence in it as a prediction.  I believe there is more uncertainty than you seem to acknowledge.

[Flat Bear]

31 minutes ago, A.steve said:

Obviously I understand that the price of diesel is only a small component to inflation metrics like RPI and CPI... However, there are many potentially relevant metrics for inflation... each subtly different... and those differences are relevant.  If one were to implement a specialist inflation metric - which gave a high weighting to the price of diesel - then, by this measure, inflation would be negative when prices of diesel fall substantially.

I do understand your opinion... though I don't have confidence in it as a prediction.  I believe there is more uncertainty than you seem to acknowledge.

OK Steve.

It sounds like you are a "Do not know" I note you havn't voted yet?

[Zzzzzzzzzzzzzzzzzzzzzzzzzz]

On 29/08/2022 at 18:22, Flat Bear said:

I have noted that all posters (sorry if I have missed anyone who thinks otherwise) on this forum believe the inflation we are seeing is just temporary. They may believe it takes slightly longer tahan the BOE predicts but fundamentally believe it to be temporary or transient in nature.

Am I the only one that thinks this inflation is persistent and in no way temporary?

I don't know anyone I work with who thinks this is a blip... the China effect is over - the tech effect is over... we are moving into a new era in which inflation will be persistently higher. This is a structural shift. 

Edited August 31, 2022 by Sausages

[markyh]

On 29/08/2022 at 18:38, winkie said:

It will go up then it will come down......... inflation cannot keep going up forever impossible.

 

True but once it works through in even 12 months YOY you are still looking at prices 100% higher everywhere than 2019. Inflation will fall back but it is not going negative by 10% YOY suddenly.  Didn't in the 70's wont now. 

[Flat Bear]

5 minutes ago, Sausages said:

I don't know anyone I work with who think this is a blip... the China effect is over - the tech effect is over... we are moving into a new era in which inflation is persistently higher. This is a structural shift. 

Agreed.

[markyh]

25 minutes ago, Sausages said:

I don't know anyone I work with who thinks this is a blip... the China effect is over - the tech effect is over... we are moving into a new era in which inflation will be persistently higher. This is a structural shift. 

So like the 1970's wage inflation will have to come along for the ride, and those with fixed assets already (houses, cars etc) will get their fixed debts bailed out by wage inflation again.  

[Mandalorian]

1 hour ago, slawek said:

 

The market is pricing the future inflation. Average inflation in the US over next 1 and 2 years is expected to be around 3.3%.

Lol

Wanna buy a bridge?

[A.steve]

59 minutes ago, Flat Bear said:

OK Steve.

It sounds like you are a "Do not know" I note you havn't voted yet?

I didn't vote because none of the options really felt valid.  I am uncertain both about how 'inflation' was intended to be interpreted and similar for 'temporary/permanent' - as well as having uncertainty about what I think will happen with my own interpretation of 'inflation' - i.e. a measure that would be a meaningful personal metric for myself.

All three of the voting options are approximately equally mismatched with what I expect.  I might not even be able to describe what I expect... but here's an approximation.  I believe that 2020 represented a fundamental shift in international relations... that will have huge and prolonged implications both for international trade and for the availability of credit.  I believe the repercussions of decisions made in 2020 will be dramatic and permanent (likely to substantially affect human experience for many decades - perhaps many centuries) and do not believe all the effects are yet observable.  I, personally, do not believe that the reason for the decisions I'm talking about had any clinical basis whatsoever.

I think the political situation in both China and Russia is febrile.  I suspect that, perhaps to a lesser extent right now, many other countries' populations are experiencing a severe cultural shock... the consequences of which will last decades... and may well redefine life on earth for mankind.  I think the official inflation metrics are a farce now - just as they have been a farce since - roughly - 1994.... (I think that "inflation targetting" as monetary policy was no worse than typical for a brief period - which I estimate at 2 years.)  Thereafter, I believe 'financial innovation' has dramatically skewed every meaningful aspect of human experience.  If we assume children are shielded from economic reality by their parents until they are 18... this means no-one under the age of 48 has any credible personal experience of an economic environment in which the money supply was not distorted by a monetary policy of "inflation targeting".  I believe it was wrong-headed then and I believe it is wrong headed now.  The fact that, now, targeting the inflation metric requires increasing interest rates... and I believe interest rates should rise... does not mean I believe that these rises in interest rates should be policy as a consequence of the official statistics for the inflation rate.

I believe that financial engineering unreasonably skewed the relationship between capital expenses and operating expenses... between asset prices and wages... between speculative investments and tangible goods.  I think that the emperor has been recognised as being naked - and some of the elite are panicked.  The problem isn't a problem of calculations - the problem is that everything that's being calculated is utterly irrelevant, and we may-as-well count tea-leaf patterns.

I think rising interest rates (which I have considered absolutely critically important for 20 years) will now have a dramatic effect on economic activity.  I think that a fairly large proportion of the public are going to experience a dramatic and unpleasant shock... and, when they do, they'll realise their reality is the same as it always was - but, in the past, they hadn't recognised it.  I expect a considerable reduction in demand... I expect fewer holidays; fewer exotic gadgets and cars; I expect much lower retail sales.  I expect industrial action with strikes and for a new reality where there is much more conflict.  I expect many to have dramatically less disposable cash - and I expect the cost of essentials to rise... at the same time... the cost of servicing debt will rise... and this will devastate many lives.  At the same time, I expect coveted luxury items (large houses; flash cars; artworks; yachts; aeroplanes; helicopters - etc.) to plummet in price and value.  I expect the value of investment portfolios will fall in nominal terms and... thereafter... a new baseline will be set.

For someone who has income of £50K; a house for which they paid £350K with a £250K mortgage - with 4 mouths and an inefficient heating system to to feed... with £10K in credit card debt and a PCP car....  I expect their personal inflation rate to seem very high for the foreseeable future.

For someone who has income of £50K; a home which they own outright; 2 mouths and an efficient heating system to feed... with £100K in cash savings and no debt... where their spending on essentials used to be <10% of their available income... to perceive a much lower rate of inflation... they may even perceive deflation.

In the context of all that... I know I can't predict the trajectory of CPI figures... and neither can anyone else.  There are too many relevant uncertainties.  Even if I could predict CPI figures - doing so would be pointless... because I don't think CPI measures anything that matters.  CPI is the HCIP metric (as defined by Eurostat - then renamed) that Eurostat made clear was unsuited as a metric for domestic inflation (to guide monetary policy.)

3 hours ago, Flat Bear said:

I have absolutely no idea what you are talking about.

Was Chaucer gay? What relevance does it have.

Scotbeard was demonstrating a common misunderstanding of the word "semantic" when attempting to make a point about semantics.  Quite an elegant little self-referential pirouette.

As for Chaucer's proclivities, I doubt there's any foolproof way to test the hypothesis.  In this sense, I suppose, analogously to questions about inflation, where different people have different interpretations of 'inflation', just as different people interpret 'queer' in different ways, it's difficult to be absolutely sure.

Chaucer used words that sounded funny... so, in that sense, perhaps he was just a banker?

Edited August 31, 2022 by A.steve

[slawek]

21 minutes ago, Mandalorian said:

Lol

Wanna buy a bridge?

I find this strange too.