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tinecu

How High Will Inflation Go?

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OK so currently the CPI=2.5% and the RPI=3.3% and are probably underestimates.

See:http://www.statistics.gov.uk/CCI/nugget.asp?ID=19

The BoE showed that theres a causal link of 0.1% inflation per $ rise on a barrel of oil, that comes into effect around two years later...see http://www.tutor2u.net/economics/content/t.../oli_prices.htm

Since Jan 2004 oil has risen by around $45, hence expect a 4.5% rise in 'oil push' inflation.

In Jan 04 CPI was around 2%. So not taking into account any other inflationary pressures (primary or secondary) we are looking at inflation rising to a minimum of 6.5%. Therefore likely to exceed HPI....

By the way, this BoE formula was devised BEFORE we became a net oil importing nation so the effect will be more pronounced than this.

Inflation at 6.5% means interest base rates will have to be raised to a minimum of 7-8% to stop the erosion of capital...

Making minimum mortgage rates of around 9-10% will have a very real effect...

similar to the late seventies oil crisis...

However a key difference this time, is the YCT , which is powered by IR differentials will we see lending operating below the BoE base rates and therefore attenuating the effect of IR rises?

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I dont believe this for one minute. It would ruin Labours reputation.

There's not much of a reputation left to ruin imho.

Snouts in trough , Iraq , Cash for peerages , etc , etc , etc.............

Dames :angry:

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There's not much of a reputation left to ruin imho.

Snouts in trough , Iraq , Cash for peerages , etc , etc , etc.............

Dames :angry:

It will be, as it was before, events beyond the control of our government that will bring about economic decline.

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OK so currently the CPI=2.5% and the RPI=3.3% and are probably underestimates.

See:http://www.statistics.gov.uk/CCI/nugget.asp?ID=19

The BoE showed that theres a causal link of 0.1% inflation per $ rise on a barrel of oil, that comes into effect around two years later...see http://www.tutor2u.net/economics/content/t.../oli_prices.htm

Since Jan 2004 oil has risen by around $45, hence expect a 4.5% rise in 'oil push' inflation.

In Jan 04 CPI was around 2%. So not taking into account any other inflationary pressures (primary or secondary) we are looking at inflation rising to a minimum of 6.5%. Therefore likely to exceed HPI....

By the way, this BoE formula was devised BEFORE we became a net oil importing nation so the effect will be more pronounced than this.

Inflation at 6.5% means interest base rates will have to be raised to a minimum of 7-8% to stop the erosion of capital...

Making minimum mortgage rates of around 9-10% will have a very real effect...

similar to the late seventies oil crisis...

However a key difference this time, is the YCT , which is powered by IR differentials will we see lending operating below the BoE base rates and therefore attenuating the effect of IR rises?

That would only be true if you extrapolated a linear trend from the data, which would mean assuming that demand remains constant in the face of rising prices. Which ain't gonna happen. As oil rises in price then people will use less and efficiency-improving technology will become more economically viable to invest in.

Plus, you may not be taking into account any other inflationary pressures but you're also conveniently forgetting any deflationary pressures too.

Your post reminded me of a wacko independent election candidate who's propaganda leaflet got pushed through my door once. It had a chart showing how his share of the vote in the last two elections had jumped from 0.04% to 1% (or something similar) so extrapolating forward he would be my MP by the middle of the century. Was almost tempted to vote for him to save the wait... :lol:

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That would only be true if you extrapolated a linear trend from the data, which would mean assuming that demand remains constant in the face of rising prices. Which ain't gonna happen. As oil rises in price then people will use less and efficiency-improving technology will become more economically viable to invest in./

Yes, But. One of the things that happens with oil price inflation is that it spreads through into other goods.

The cost of other energy sources rises to match the oil price.

The cost of transporting anything rises - and this can push up distributive trades' prices.

The cost of getting employees to appointments rises - pushing up services prices.

Plastics - the costs rise.

Energy intensive industries have rising costs.

Now, some of these extra costs can be absorbed in lower margins and efficiency measures, but eventually it will break through and we'll see the prices of a range of goods and services rise.

In other words, rising oil prices will have a sort of 'multiplier effect'.

See this excellent thread about Proctor and Gamble

Edited by redwing

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Yes, But. One of the things that happens with oil price inflation is that it spreads through into other goods.

The cost of other energy sources rises to match the oil price.

The cost of transporting anything rises - and this can push up distributive trades' prices.

The cost of getting employees to appointments rises - pushing up services prices.

Plastics - the costs rise.

Energy intensive industries have rising costs.

Now, some of these extra costs can be absorbed in lower margins and efficiency measures, but eventually it will break through and we'll see the prices of a range of goods and services rise.

In other words, rising oil prices will have a sort of 'multiplier effect'.

See this excellent thread about Proctor and Gamble

Quite true... but a tripling in inflation due to oil prices?

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Quite true... but a tripling in inflation due to oil prices?

triple 2.0% is not that bad...

Now if inflation was say 5.0% then triple would be seeeeeerious.

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Quite true... but a tripling in inflation due to oil prices?

A tripling in house prices due to lax lending sounds almost as implausible to me.

...but still they come.... ooooooo-low

btp

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That would only be true if you extrapolated a linear trend from the data, which would mean assuming that demand remains constant in the face of rising prices. Which ain't gonna happen. As oil rises in price then people will use less and efficiency-improving technology will become more economically viable to invest in.

Plus, you may not be taking into account any other inflationary pressures but you're also conveniently forgetting any deflationary pressures too.

Your post reminded me of a wacko independent election candidate who's propaganda leaflet got pushed through my door once. It had a chart showing how his share of the vote in the last two elections had jumped from 0.04% to 1% (or something similar) so extrapolating forward he would be my MP by the middle of the century. Was almost tempted to vote for him to save the wait... :lol:

Hey Farticus leave it out. No need for 'wacko' mate. This is quite a conservative projection based on the BoEs own formula. Oil goes into a lot more than you car mate! B)

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Hey Farticus leave it out. No need for 'wacko' mate. This is quite a conservative projection based on the BoEs own formula. Oil goes into a lot more than you car mate! B)

My chariot runs on pure grass... :lol:

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Guest muttley

Plus, you may not be taking into account any other inflationary pressures but you're also conveniently forgetting any deflationary pressures too.

Could you give some examples of "deflationary pressures? ( I can only think of one. People running out of money)

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Quite true... but a tripling in inflation due to oil prices?

Indeed. How could anyone believe inflation would rise as high as 6% just becasue the cost of one of the most essential raw materials in our society has nearly quadrupled in a few years?

Why, the very idea is preposterous.

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Could you give some examples of "deflationary pressures? ( I can only think of one. People running out of money)

Globalisation

A US recession

Technology and efficiency improvements

I know people on here mock the CPI basket as being stuffed with iPods and DVD players, but the fact is that a lot of things we buy (food, drink, furniture to name a few) have massively decreased in cost over the last decade or so.

Indeed. How could anyone believe inflation would rise as high as 6% just becasue the cost of one of the most essential raw materials in our society has nearly quadrupled in a few years?

Why, the very idea is preposterous.

Oil has been rising in price for a decade now. The BoE study quoted above estimated a lag of 2 years to feed into general inflation. The only way that oil price rises will boost inflation is if those price rises accelerate. In the last few months they have but that is (hopefully) a temporary effect due to the ME situation.

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Guest muttley

Globalisation

A US recession

Technology and efficiency improvements

OK.Good points. But it's not just oil that is going up, it's commodities in general. The driving force behind this is the rapid expansion of the Chinese economy. (India too, but mostly China) For how long will the Chinese factory workers and the Indian service sector workers be willing to work for peanuts? Globalisation has given us low inflation today, but will work against it tomorrow as the Indo-Chinese economies expand.

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OK.Good points. But it's not just oil that is going up, it's commodities in general. The driving force behind this is the rapid expansion of the Chinese economy. (India too, but mostly China) For how long will the Chinese factory workers and the Indian service sector workers be willing to work for peanuts? Globalisation has given us low inflation today, but will work against it tomorrow as the Indo-Chinese economies expand.

I quite agree with you. In the short term I think inflation will be driven by higher oil and commodities and in the longer term globalisation will possibly also shift to being an inflationary force as you say. My contention was merely that the original poster was trying to extrapolate a simple linear relationship too far with his predictions, without allowing for the complexities, checks and balances of real markets. My prediction is for rising inflation and interest rates in the next few months too - I just disagree about the causal explanation.

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The only way that oil price rises will boost inflation is if those price rises accelerate.

They'll boost inflation when companies stop swallowing the increases in costs and pass them on to the consumer. There are massive inflationary pressures built up in industry which the companies haven't yet passed on... oil prices could drop and most of that built-up pressure will still be there just waiting to explode into the general economy.

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It is going to take natural levels of interest rates and money expansion to quell commodities - this isn't it. Oil and commodity depenency is not just simply going to reduce on its own as other countries are growing their requirements.

China has had something like 3 months of rising output prices amonst their manufacturers. The chance for Chinese producers to ratchet prices is when they have effectively wiped out competitiion in individual sectors - one at a time they have been doing this, there comes a ponit where they simply don't need to carry on in deflationary mode, or indeed won't be able to because of internal price/workforce/commodity pressures - at this point the lid could get blown off inflation-wise as they then reap the harvest that they have sown.

Climatic changes may cause rapid swings in foodstuffs. Oil - terrorism/global politics/war. Metals - demand still rising for many with not enough new supplyto meet existing demand. May even get to the point where in the general public's eye-you "invest in commodites because people have to eat, you know" phase akin to the housing market - boy would there be trouble then.

0.25% on £100k mortgage is peanuts compared to near 10% inflation elsewhere. Bit like screaming about the presence of a mouse in the room whilst being silently trampled by an invisible elephant.

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Guest muttley

They'll boost inflation when companies stop swallowing the increases in costs and pass them on to the consumer. There are massive inflationary pressures built up in industry which the companies haven't yet passed on... oil prices could drop and most of that built-up pressure will still be there just waiting to explode into the general economy.

Maybe they'll just go bust ( deflationary )

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They'll boost inflation when companies stop swallowing the increases in costs and pass them on to the consumer. There are massive inflationary pressures built up in industry which the companies haven't yet passed on... oil prices could drop and most of that built-up pressure will still be there just waiting to explode into the general economy.

But... as I said earlier the prices have been rising for a decade but haven't 'exploded' into the economy. They've contributed to a low and manageable rate of inflation.

Secondly, if companies pass on price rises for discretionary purchases then consumers will start to purchase more items that aren't affected by oil prices. In the long run this shift in buying patterns will dampen demand for oil, stop the prices sky-rocketing and help keep inflation in check.

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But... as I said earlier the prices have been rising for a decade but haven't 'exploded' into the economy. They've contributed to a low and manageable rate of inflation.

Secondly, if companies pass on price rises for discretionary purchases then consumers will start to purchase more items that aren't affected by oil prices. In the long run this shift in buying patterns will dampen demand for oil, stop the prices sky-rocketing and help keep inflation in check.

Hmm not convinced. If you have to move any object to sell it it uses oil...that doesn't leave you much for the 'discretionary purchases' category now does it?

Now consider that the UK has just become a net oil importer and has little left in the way of manufacturing....the future looks lass than rosy.

BTW oil prices have not been rising for decade just since 2004....now someone called Bush did something around then...

See: http://inflationdata.com/inflation/images/...rices_Chart.htm

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Hmm not convinced. If you have to move any object to sell it it uses oil...that doesn't leave you much for the 'discretionary purchases' category now does it?

Now consider that the UK has just become a net oil importer and has little left in the way of manufacturing....the future looks lass than rosy.

BTW oil prices have not been rising for decade just since 2004....now someone called Bush did something around then...

See: http://inflationdata.com/inflation/images/...rices_Chart.htm

Companies can shift to more local production and consumers can switch to buying locally produced goods as they become relatively cheaper. Besides, in our shiny new information economy we can export our 'produce' down a telephone line... :blink: (tongue fimly in cheeek!)

And that chart shows oil prices rising since 1998, i.e. 8 years. That's almost a decade :)

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Companies can shift to more local production and consumers can switch to buying locally produced goods as they become relatively cheaper. Besides, in our shiny new information economy we can export our 'produce' down a telephone line... :blink: (tongue fimly in cheeek!)

And that chart shows oil prices rising since 1998, i.e. 8 years. That's almost a decade :)

OK now read this: http://www.moneyweek.com/file/16336/how-to...rol-prices.html

If you are still not convinced I give up.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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