Is the current inflation temporary or persistent.

[Housepricecrash91]

Probably temporary. i.e. inflation should drop to 'normal levels' within the next 12-24 months.

However, the damage has been done. It's unlikely that any of life's essentials will drop below todays prices, apart from maybe food?

 

[Flat Bear]

8 hours ago, Housepricecrash91 said:

Probably temporary. i.e. inflation should drop to 'normal levels' within the next 12-24 months.

However, the damage has been done. It's unlikely that any of life's essentials will drop below todays prices, apart from maybe food?

 

What do you think will be the new "normal" level over the next decade?

You know this thread was started 12 months ago so I suppose what we have now is the new normal level (12-24 months)

Can not see inflation staying at this new normal level of 6.8%CPI it has to go higher.

What is a normal inflation level? It seems many believe it to be 2% to 3.5% with a neutral BOE base rate of 5.5%. We will probably have the neutral base rate at the next BOE meeting but inflation has got a long way to come down.

[hughjass]

Why will it go higher? Wheat has dropped in price Gas has dropped, these interest rates will start to bite. Bad news for over leveraged mortgage holders .  Last winter they were saying worst recession for 100 years that hasnt happened .I think we will have a soft landing and stumble along the bottom as we have for last 20 years.

 

[Dreamcasting]

6 minutes ago, hughjass said:

Why will it go higher? Wheat has dropped in price Gas has dropped, these interest rates will start to bite. Bad news for over leveraged mortgage holders .  Last winter they were saying worst recession for 100 years that hasnt happened .I think we will have a soft landing and stumble along the bottom as we have for last 20 years.

 

People are just guessing because everyone is entitled to an opinion. And inflation is going to be different for everyone based on their own personal circumstances and spending.

I personally don't see an inflation rate normalised at over 6% however. Not many people at all would be able to keep up for many years without going bust along with their employment. I also think people here are overthinking things. Basically, if you're in debt and you can no longer pay, you get your toys taken away from you, just like in the past. That's all there is to it. 

[Housepricecrash91]

39 minutes ago, Flat Bear said:

What do you think will be the new "normal" level over the next decade?

You know this thread was started 12 months ago so I suppose what we have now is the new normal level (12-24 months)

Can not see inflation staying at this new normal level of 6.8%CPI it has to go higher.

What is a normal inflation level? It seems many believe it to be 2% to 3.5% with a neutral BOE base rate of 5.5%. We will probably have the neutral base rate at the next BOE meeting but inflation has got a long way to come down.

Ah sorry, didn't realise this was a thread from a year ago, actually I guess 3+ years of high inflation would be deemed persistent...

When I said normal I was thinking 2-3% annual inflation with a base rate around the 5% mark... Not sure how that compares to pre-2008, but I imagine that would be deemed normal

[Flat Bear]

1 hour ago, hughjass said:

Why will it go higher? Wheat has dropped in price Gas has dropped, these interest rates will start to bite. Bad news for over leveraged mortgage holders .  Last winter they were saying worst recession for 100 years that hasnt happened .I think we will have a soft landing and stumble along the bottom as we have for last 20 years.

 

Why will it go higher?

Because the value of GBP is losing value and you need more of it to buy stuff. 

Wheat has dropped in price Gas has dropped,

The price of bread (wheat) will continue to rise and the Gas price has doubled since 2018. The fact there was a spike in the prices is irrelevant.

Last winter they were saying worst recession for 100 years that hasnt happened .

Bubbles last much longer than anyone predicts. We are in a real slowdown at this time as well as changes in work patterns and supply (the way we get our goods) It may be delayed but we will see a "cost of living" crisis not seen for a very long time.

I think we will have a soft landing and stumble along the bottom as we have for last 20 years.

The last 20 years has been the anomaly, you just do not know it yet.

[scottbeard]

On 22/06/2023 at 14:35, Flat Bear said:

QE was deflationary, yes I know, because it made the currency very cheap and the value of it fell so interest rates could be kept artificially low. This is and will slow down the fall in assets such as houses in the shorter term (end of 2023?)

QT is inflationary for the same reason. There is still a lot of money in the system and it will take a long time for this money supply to drop to a level where money actually becomes valuable and banks and other institutions actively ask you for your money in return for a favourable interest rate ie above the inflation rate.

1 minute ago, Flat Bear said:

Why will it go higher?

Because the value of GBP is losing value and you need more of it to buy stuff.

You have two conflicting posts here - one suggesting cheap GBP is deflationary, and another that it is inflationary.

Your first post from June is incorrect.  QE has always been inflationary - the difference is that when it was started post-credit crunch it was a fiercely deflationary environment: we were hours away from a banking collapse that could have wiped 50%+ of the economy away, and probably would have wiped 20% of it away but for QE.  So the QE turned a 20% deflation into inflation of 0-3%.  But because 0-3% is so low people missed that it was inflationary at all.

However, come 2021, there was no such deflationary force, so the 2021 QE added to the inflation already on the cards from Brexit and Ukraine war and made it worse.

[hughjass]

Flat Bear, you are a real doom and gloom merchant, so lets take your scenario that inflation is going to be high are we going to be a basket case in 2 years time? 

What advice would you give us on here to position ourselves to best survive the oncoming scenario?

[Jinxed]

 CB's keep stating inflation is transitory, and caused by temporary factors, (first Covid, then Russia, etc, and the US is not at full employment), and the recession keeps looming large then inflation is entrenched, (if you were measuring inflation the same way they did twenty, thirty years ago, it would be far higher right now) and US employment figures first quarter this year have not been so low since 1948.....perhaps inflation is entrenched, which nobody should be surprised about really and could it even mean double digit interest rates by 2025?

 

 

[Flat Bear]

Inflation in a complex economy is a very difficult thing to see for ordinary people.

"Gas prices and Electric prices are coming down so inflation is beaten right?" Wrong.

Inflation is an illusion. We know that money (fiat) is an illusion therfore inflation is also an illusion.

It is all about perception and once it is perceived that money is becoming more worthless over time then people will demand more of it for their "services" which is what inflation is.

With your average joe having to pay 10% more for his rent (30% more for his mortgage) 50% more to run his car and 20% to feed himself he knows he needs to earn a lot more to stand still. Human nature as it is people expect to earn/have more in the future than they have now so they will want more than to just stand still. During this time there will be a lot of turmoil as people try and make sense of it and move to where the money is.

[Jinxed]

Theres a staggering amount of bearish sentiment about the US housing market over the last few weeks, perhaps we'll see some sort of new type of gold standard is going to be announced shortly by the BRICS countries, I like the idea of crypto not being bank controlled, but its really just another fiat isnt it? 

[Dreamcasting]

11 minutes ago, hughjass said:

What advice would you give us on here to position ourselves to best survive the oncoming scenario?

I'm not Flat Bear, but I'll answer? If inflation continues to run hot and your cash is inflating away, the answer would be to buy a house and rent it out. You know it makes sense 😄

Seriously though, if inflation isn't dealt with very quickly at this point, we are all in big trouble. Probably to the point where you will lose everything you have.

[Flat Bear]

11 minutes ago, scottbeard said:

You have two conflicting posts here - one suggesting cheap GBP is deflationary, and another that it is inflationary.

Your first post from June is incorrect.  QE has always been inflationary - the difference is that when it was started post-credit crunch it was a fiercely deflationary environment: we were hours away from a banking collapse that could have wiped 50%+ of the economy away, and probably would have wiped 20% of it away but for QE.  So the QE turned a 20% deflation into inflation of 0-3%.  But because 0-3% is so low people missed that it was inflationary at all.

However, come 2021, there was no such deflationary force, so the 2021 QE added to the inflation already on the cards from Brexit and Ukraine war and made it worse.

Hello scottbeard.

QE is a real paradox and it seems no one really understood it. They played with fire and because it did not burn them straight away they carried on doing it over and over again.

You would think that any money introduced into a system would be inflationary wouldn't you? whether it was helicopter money or if introduced in the form of "quantitative easing". BUT no.

QE was first invented and introduced in Japan before the turn of the century IIRC and instead of stimulating the economy into an inflationary cycle it had the effect of doing the exact opposite starting a period of deflationary stagnation. Much of it comes down to moral hazzard as the affect was to introduce very cheap credit which as we know found its way into safe secure assets which in turn increased the price of those assets. This cheap credit made the cost of living very low and as interest rates came down as a result people were able to buy what they wanted without having to earn any more. The very cheap credit gave companies and individuals the means to expand easily and keep the cost down as the main driver of business, capital, was so very cheap.

This could not go on forever and as Japan has found out they are indebted more than any other nation. At some point this money has to be paid back or more precisely "tightened" (got rid of) but although this SHOULD BE deflationary in the same way QE was deflationary QT will be inflationary. A real paradox.

[hughjass]

7 minutes ago, Dreamcasting said:

I'm not Flat Bear, but I'll answer? If inflation continues to run hot and your cash is inflating away, the answer would be to buy a house and rent it out. You know it makes sense 😄

Seriously though, if inflation isn't dealt with very quickly at this point, we are all in big trouble. Probably to the point where you will lose everything you have.

Really lose everything?? So society will collapse and we will be like Escape from New York? 

I was talking to a mate I worked with in a bank back in 1976 , we had inflation then but I cant remember worrying about it. Ive been expecting a 1929 type crash for years hasnt happened yet. Even then life carried on though they had it pretty bad. 

[Dreamcasting]

2 minutes ago, hughjass said:

Really lose everything?? So society will collapse and we will be like Escape from New York? 

I was talking to a mate I worked with in a bank back in 1976 , we had inflation then but I cant remember worrying about it. Ive been expecting a 1929 type crash for years hasnt happened yet. Even then life carried on though they had it pretty bad. 

Inflation is a very serious problem right now. Unless it is arrested pretty quickly, it will spiral out of control. Once that happens, we are well and truly on the road to hyperinflation. If £1 suddenly becomes worth £0, then it doesn't matter how many £s you have as it's all worthless. Your £2.5m house is also worthless.

You won't be able to buy food for starters. Why would someone work to produce and transport anything for £0?

The governments and central banks are well aware of the consequences. It means ramming interest rates up far higher than what most people can even begin to imagine.

[scottbeard]

12 minutes ago, Flat Bear said:

Much of it comes down to moral hazzard as the affect was to introduce very cheap credit which as we know found its way into safe secure assets which in turn increased the price of those assets. This cheap credit made the cost of living very low and as interest rates came down as a result people were able to buy what they wanted without having to earn any more. The very cheap credit gave companies and individuals the means to expand easily and keep the cost down as the main driver of business, capital, was so very cheap.

Sorry but on this one I simply don't agree.

Asset price increases are a symptom of inflation, not an alternative to it.

Credit doesn't "find its way" into assets and then stop.  If I buy a house say from someone the money doesn't evaporate, instead the seller has it and buys something else etc.  That money circulates and drives more demand.

You are correct that cheap credit drives expansion that is in some cases malinvetsment as companies exist on cheap credit who really shouldn't exist, and who Go bust when interest rates normalise.  However again that might keep prices of some consumable e things down temorarily but prices of assets shot up.  Its only because you're focusing on inflation as measured by CPI and not overall jnflation that you're seeing it backwards. 

[frederico]

Inflation is driven by global demand global demand is probably growing at circa 8%, global production is generally not increasing much and if it did would drive demand for commodities which would push prices up.

its hard to see how 2% is remotely possible with out causing hardship to most of the population.

[Flat Bear]

32 minutes ago, hughjass said:

Flat Bear, you are a real doom and gloom merchant, so lets take your scenario that inflation is going to be high are we going to be a basket case in 2 years time? 

What advice would you give us on here to position ourselves to best survive the oncoming scenario?

ok

2 years time. August 2025

The QE experiment will be seen as the disaster that no-one had seen, although there will be many who will say they knew all along. QT will only tentively start to happen.

Inflation will be high and it will be recognised for the real danger it is. People and Governments will take it very seriously, or start to.

We are likely to be in a slump or in an economy slower than today.

Although you may feel poorer because of the economic slowdown and probable higher unemployment and more expensive imported goods you will not be much worse off practically. Lack of cheap Chinese imports may well make you feel poorer.

The economy and Government services are likely to start changing and healthcare, policing, social services et all may well become not fit for purpose.

A new political debate may well have begun. Labour in power???

How do you see August 2025

[Dreamcasting]

4 minutes ago, Flat Bear said:

The economy and Government services are likely to start changing and healthcare, policing, social services et all may well become not fit for purpose.

What like any government department is fit for purpose today?

Could easily sack the majority of them now and save a couple of years on getting back on the road to recovery.

[hughjass]

Flat Bear you do put a lot of effort in on this forum so thanks for that but are you overthinking things??? From a personal viewpoint in two years time Id say things will be very similar to today, there will be two cars outside every house on my street , we will still have running water , internet, electricity at the flick of a switch and food in the shops. I can see some things like food costing more presently spend about £50 a week for nothing flashy, could be 65 plus then. Hopefully will have had the windows and kitchen replaced in my house expecting to spend 30k plus on those things. Might be looking into a new motor another 10 k maybe a new push bike 6-7 k .

Nothing will stop people in this country spending  on flash cars and overpriced houses and useless tat,. 

Public services wont be any better maybe my dentist will have gone private but I can cope with that. I can see some inner city areas becoming like a zombie movie but Ive no need to visit such places so wont lose any sleep over it.

Do you think thats a fair appraisal or should I change plans?

Edited August 20, 2023 by hughjass

[Flat Bear]

5 minutes ago, scottbeard said:

Sorry but on this one I simply don't agree.

Asset price increases are a symptom of inflation, not an alternative to it.

Credit doesn't "find its way" into assets and then stop.  If I buy a house say from someone the money doesn't evaporate, instead the seller has it and buys something else etc.  That money circulates and drives more demand.

You are correct that cheap credit drives expansion that is in some cases malinvetsment as companies exist on cheap credit who really shouldn't exist, and who Go bust when interest rates normalise.  However again that might keep prices of some consumable e things down temorarily but prices of assets shot up.  Its only because you're focusing on inflation as measured by CPI and not overall jnflation that you're seeing it backwards. 

Asset price increases are a symptom of inflation, not an alternative to it.

This is exactly what many of us have been saying on this forum for ove 20 years. The CPI RPI inflation figures are a complete joke and do not represent inflation at all. How can you exclude the biggest and most important item that just about everyone will buy and expect a figure to be accurate.

We had HPI at 20% but the CPI inflation figure was 0.1% and the BOE droped rates to 0.1%. Why, how could they do that with inflation (real inflation) running at 20%? What they did was divorce "assets" from day to day living expenses simply because it suited them politically.

ALL the QE money was lent out through the banking system and all this ZIRP money was used by the bank to buy the very safest assets they could which meant government debt and very safe assets. A sizeable proportion of this QE money was used to purchase UK property which sent prices higher and in turn created a self fulfilling market for this plentiful cheap QE money. The banks made more money during this period than ever before in their history and the Government was happy because they had someone who would lend them back the money they had created to buy their bonds and debt. (you couldn't make this bit up could you)

We are still in the tail end of this period and I am still getting daily offers of loans albeit at much higher interest rates. The banks relied solely on QE it distorted everything. The banks no longer needed customer deposites as they had all the capital they needed at rates so low they were touching the floor. We are likely to see a period of 6 months or more where banks will offer fixed rate mortgages at or just above BOE base rates because there is still so much QE money still in the system.

If you buy a house for £1,000,000 with a mortgage of 0.1% or if you buy the same house for £100,000 with a mortgage of 11.5% Which one should show as the higher in the inflation figures?

Credit doesn't "find its way" into assets and then stop.  If I buy a house say from someone the money doesn't evaporate, instead the seller has it and buys something else etc.  That money circulates and drives more demand.

Unfortunately it does. Credit is created and once it is paid back it disappears.

If you buy a house from someone the money is given to the vendor and you get one house it is as simple as that. The money/credit created in the whole property system stays in the property system. Occasionally people trade down and get "equity release" from a property and where the money generated goes to purchase day to day items then this would have an inflationary effect. But in general there is more money going into this property system than coming out so it is deflationary as there is less descretionary spending.

Its only because you're focusing on inflation as measured by CPI and not overall jnflation that you're seeing it backwards. 

I do not focus on inflation as measured by CPI, you should know that by now. Real inflation is running at around 15% excluding house prices which have stagnated or have already dropped a couple of percent.

[Flat Bear]

24 minutes ago, hughjass said:

Flat Bear you do put a lot of effort in on this forum so thanks for that but are you overthinking things??? From a personal viewpoint in two years time Id say things will be very similar to today, there will be two cars outside every house on my street , we will still have running water , internet, electricity at the flick of a switch and food in the shops. I can see some things like food costing more presently spend about £50 a week for nothing flashy, could be 65 plus then. Hopefully will have had the windows and kitchen replaced in my house expecting to spend 30k plus on those things. Might be looking into a new motor another 10 k maybe a new push bike 6-7 k .

Nothing will stop people in this country spending  on flash cars and overpriced houses and useless tat,. 

Public services wont be any better maybe my dentist will have gone private but I can cope with that. I can see some inner city areas becoming like a zombie movie but Ive no need to visit such places so wont lose any sleep over it.

Do you think thats a fair appraisal or should I change plans?

You are right in one thing, I do analysis things to death. What if? type thing.

I wouldn't say you should change your plans unless you want to.

The truth is much of what will happen is beyond our control and there is not many specific things we can do to mitigate things.

Young lad up my club has just put an offer in for a house, it looks nice. I congratulated him and although I mentioned the property market could see a tough time for a few years i said it was probably the best decision for him at this time. If prices did drop 25% it may still be the right thing to do as most of us are buying a home. Also there is the case for high inflation, possibly even higher than I predict, pushing prices up including the price of his new house.

There are so many people advising on getting into or out of various financial adventures it is best to do what you think is right then whatever happens you will feel better for it.

[Flat Bear]

51 minutes ago, hughjass said:

Flat Bear you do put a lot of effort in on this forum so thanks for that but are you overthinking things??? From a personal viewpoint in two years time Id say things will be very similar to today, there will be two cars outside every house on my street , we will still have running water , internet, electricity at the flick of a switch and food in the shops. I can see some things like food costing more presently spend about £50 a week for nothing flashy, could be 65 plus then. Hopefully will have had the windows and kitchen replaced in my house expecting to spend 30k plus on those things. Might be looking into a new motor another 10 k maybe a new push bike 6-7 k .

Nothing will stop people in this country spending  on flash cars and overpriced houses and useless tat,. 

Public services wont be any better maybe my dentist will have gone private but I can cope with that. I can see some inner city areas becoming like a zombie movie but Ive no need to visit such places so wont lose any sleep over it.

Do you think thats a fair appraisal or should I change plans?

Also there is a lot of stuff coming out of left field.

Will the property crash/crunch in China have real consequences for Western/UK banks? There must be some contagion but what is the extent? This is quite worrying.

There are so many other things that could have a bearing over the next 2 years.

[hughjass]

Do you remember the 70S Flat Bear ? Decent time for me I was more interested in motorbikes and music than worrying about the price of stuff. Speak to the average person in the street and they are not bothered much as long as they are getting by.

I thought there was trouble coming last winter with the high price of gas/ food  etc but we pulled through.

Events from abroad could cause problems just like 2008 but everything is in better shape now the lessons have been learned they tell us.

Remember what Errol Flynn said " the person who leaves this world with $50 in the bank is a fool.

 

[hughjass]

Looking forwards two things that might happen that will have a huge impact on the big stage

Putin dies and theres a peace deal in Ukraine.

Angela Rayner gets her hands on the levers of power , that could be very scary.