Public View Of Inflation Fuels Fear Of A Rate Rise

[Scooter]

The Times August 25, 2006

Public view of inflation fuels fear of a rate rise

By Gary Duncan, Economics Editor

STRONG evidence that soaring fuel and utility bills are leading households to expect higher inflation in the future has increased the threat of another imminent rise in interest rates.

Expectations of future levels of inflation among the public have leapt over the past month, climbing back to highs set earlier this year, an influential poll from Citigroup revealed yesterday.

The average level of inflation expected by consumers in the coming year jumped in August to 2.5 per cent, from 2.1 per cent in July, Citgroup’s survey said.

The research also showed that the proportion of people expecting inflation to be below the Bank of England’s 2 per cent target in the year ahead fell this month to just 36 per cent, from 45 per cent in July.

At the same time. the proportion of people who think that inflation will exceed 4 per cent has soared to a fifth, from 15 per cent in July.

The surge in so-called inflation expectations will set alarm bells ringing again at the Bank.

The Governor of the Bank, Mervyn King, and members of its Monetary Policy Committee (MPC) have emphasised their view that it is crucial that such a trend does not develop as a result of soaring energy costs.

The Bank’s fear is that if people and companies come to predict that prices will rise far faster than the Bank’s 2 per cent target, this will in turn stoke-up pay demands, lead to higher wage deals, and in turn prompt companies to raise their prices further. This could trigger a “wage-price spiral” that would entrench rising inflation in the economy.

With the MPC attaching great weight to ensuring that people believe that its inflation target will be met, economists have sounded warnings that any sign of increased inflation expectations may well be met by further increases in interest rates to reinforce the target’s credibility.

Anxiety at the Bank over the risk that this is now happening will be fuelled by other findings in the Citigroup poll. It showed that average expectations of future inflation over the longer term also leapt this month, to 3.6 per cent, from 3.3 per cent in July. Four times as many people expect long-term inflation to be above the 2 per cent target than expect it to be below this level. Almost half of those polled think that long-term inflation will exceed 4 per cent.

Michael Saunders, the chief UK economist for Citigroup, said: “These readings are bound to worry the MPC. If they believe that inflation expectations are being destabilised . . . they will see a greater need to hike rates further, perhaps significantly, to demonstrate their commitment to the inflation target.”

[M&M]

6% by March any one?

[Scooter]

6% by March any one?

Hope so! Unlikely though-5% or 5.25% perhaps.

[Fancypants]

Mmm. Maybe I will end up buying that house after all.

[M&M]

Oh well, at least its going to keep rising. Whats that going to do if 0.25% causes sheeple sleepless nights? insomnia any one?

[Scooter]

Mmm. Maybe I will end up buying that house after all.

It will still take many months to feed through. I am just seeing virtually no sales in my bit of Nth London i.e. market freezing up.

[Fancypants]

It will still take many months to feed through. I am just seeing virtually no sales in my bit of Nth London i.e. market freezing up.

agreed. But it's nice to know that there is hope. Some aggressive saving for a couple of years and maybe I can get my mitts on a gaff fit to raise a family in. I don't think that's asking too much?

[OnlyMe]

he Governor of the Bank, Mervyn King, and members of its Monetary Policy Committee (MPC) have emphasised their view that it is crucial that such a trend does not develop as a result of soaring energy costs.

The Bank's fear is that if people and companies come to predict that prices will rise far faster than the Bank’s 2 per cent target, this will in turn stoke-up pay demands, lead to higher wage deals, and in turn prompt companies to raise their prices further. This could trigger a “wage-price spiral” that would entrench rising inflation in the economy.

What a load of verbal vomit.

If people need more money it is mainly becuase the cental banks have been printing the shit out of the currency, lending ever more money to the banks and creating the biggest bubbles in history - house prices, energy, services, some goods. now food. Do these idiots really think that people can carry own drowning themselves in ever larger levels of liabilities and NOT make up the difference somehwere else. Of course when your not working in the real world and the taxpaying funds everything and bails out your own pension fund to the tune of £100m's you can afford to be complacent, and ignorant of what is going on.

We've had the inflation ALREADY, people and businesses are drowning in it.

Edited August 25, 2006 by OnlyMe