Peak May Be 7 Per Cent In The Next 18 Months

[Landagan]

http://news.independent.co.uk/business/com...icle2553967.ece

"Indeed I have just seen the first economist's paper that suggests that the peak may be 7 per cent in the next 18 months to two years. It comes from Chris Watling at Longview Economics and his argument is that inflation in the UK has become more pervasive than at any time at least since the Bank got its independence."

[deano]

Someone worked out that 7% would actually destroy the market.

[nohpc]

Someone worked out that 7% would actually destroy the market.

By the market you mean the economy or the housing market?

[deano]

By the market you mean the economy or the housing market?

The market is the economy.

[snap_crackle_and_pop]

The market is the economy.

Excellent :-) somehting to look forward to then :0(

[Sebastian]

http://news.independent.co.uk/business/com...icle2553967.ece

"Indeed I have just seen the first economist's paper that suggests that the peak may be 7 per cent in the next 18 months to two years. It comes from Chris Watling at Longview Economics and his argument is that inflation in the UK has become more pervasive than at any time at least since the Bank got its independence."

The argument is flawed. There is a considerable time lag between interest rate rises and the taming of inflation, which is ignored in this article. Also, inflation is on the wane currently in most other developed countries, so the UK is the exception rather than the rule. Rising global energy and commodity costs affect every country and it by itself cannot be blamed for the UK situation. UK food prices are rising way faster than in the euro area, so again that is very much a UK problem. Growth in the UK has been running at or above its potential rate for the past 5 quarters and that is not sustainable in the long run against a background of rising interest rates, where interest rates are already at a high.

[Objective Developer]

Growth in the UK has been running at or above its potential rate for the past 5 quarters and that is not sustainable in the long run against a background of rising interest rates, where interest rates are already at a high.

I thought IRs where about 2% below the long term average - Spline would be able to confirm this?

[Pete95]

Someone worked out that 7% would actually destroy the market.

Surely depends on how long they stay at 7%, and how fast they fall back, rather than the peak figure.

If they stayed high for a couple of years then yes I think it would kill the market as people coming off fixed rates over that period would have no choice but to take out another mortgage at much greater cost (which may be simply unaffordable for many), not to mention new buyers getting mortgages.

[tara747]

I thought IRs where about 2% below the long term average - Spline would be able to confirm this?

Real IRs are important! IRs need to be a couple of % above inflation IIRC. With RPI at 4.5% IRs need to be at least 6.5%.

[tara747]

I thought IRs where about 2% below the long term average - Spline would be able to confirm this?

Real IRs are important! IRs need to be a couple of % above inflation IIRC. With RPI at 4.5% IRs need to be at least 6.5%.

[crash2006]

Someone worked out that 7% would actually destroy the market.

It's because off the amount of debt, 7% will destroy the housing market in this country

[Mr. Gruff]

Damn! Just spent an hour doing a house price/money supply graph, with loads of detail about personal loans, real house prices etc and the bloody thing crashed before saving it. Anyway, the gist of it is that prices rise when money supply to individuals increases faster than total M4, when inflation is low...

At the moments, we have had a sustained period of money supply to individuals equating roughly to total M4, but interest rates are coming up. I suspect we've got a bit longer to wait, perhaps until RPI is over 5.5%.

I'm not an expert in this, and I know that lending to individuals will have an effect on inflation etc, but from the table that took me a bloody hour to draw up(!) I suspect that we're going to have to tolerate a bit more inflation before prices come down. Either that, or total M4 will remain high and lending to individuals will drop. I wonder what could cause that?

[deano]

Surely depends on how long they stay at 7%, and how fast they fall back, rather than the peak figure.

If they stayed high for a couple of years then yes I think it would kill the market as people coming off fixed rates over that period would have no choice but to take out another mortgage at much greater cost (which may be simply unaffordable for many), not to mention new buyers getting mortgages.

Look, I dont know. If calculation is wrong, it will be a first. Got It.

[Sebastian]

Do you have a source/proof or are you making it up again? Also, you stated consumer spending was holding up well in the US yesterday, again I would like to see some substantiation of your claim as that's not what I'm hearing. In fact, last week's US retail sales figures were the worse for 16 years.

Wal-Mart's sales were down 3.5%, the worse figures for 27 years...

As he's decided to bugger off after reading my post, I'll open up the challenge, can anyone substantiate what Sebastian says on this?

US Core Consumer Price Inflation

05/06 2.40%

06/06 2.70%

07/06 2.70%

08/06 2.80%

09/06 2.90%

10/06 2.70%

11/06 2.60%

12/06 2.60%

01/07 2.70%

02/07 2.70%

03/07 2.50%

04/07 2.30%

Eurozone Consumer Price Inflation

05/06 2.50%

06/06 2.50%

07/06 2.40%

08/06 2.30%

09/06 1.70%

10/06 1.60%

11/06 1.90%

12/06 1.90%

01/07 1.80%

02/07 1.80%

03/07 1.90%

04/07 1.90%

Japan Consumer Price Inflation

05/06 0.10%

06/06 0.50%

07/06 0.30%

08/06 0.90%

09/06 0.60%

10/06 0.40%

11/06 0.30%

12/06 0.30%

01/07 0.0%

02/07 -0.20%

03/07 -0.10%

US Retail Sales

MoM YoY

05/06 0.10% 7.60%

06/06 -0.40% 5.40%

07/06 1.40% 4.80%

08/06 0.20% 6.70%

09/06 -0.60% 5.40%

10/06 -0.01% 4.90%

11/06 0.60% 4.60%

12/06 1.20% 5.70%

01/07 0.00% 2.20%

02/07 0.50% 3.50%

03/07 1.00% 3.80%

04/07 -0.2% 3.50%

I'm an economist. I don't believe what I hear all the time, I much rather read the facts.

These are the actual figures for the past 12 months. I'm not sure where you heard that US retail sales in April were the worse seen in 16 years. Retail Sales only dropped marginally in April from March's record number. While the US economy slowed to a 1.3% growth level in quarter one, Retail Sales were well above the average growth for the wider economy.

[Sebastian]

1) These do not represent most of the developed nations in the world as you put it.

2) CPI figures have been discredited.

3) We all know how much trouble the US economy's in and that any trustworthy economist would not rely upon the official US figures. Why don't you try ShadowStats? instead?

4) Japan? Don't make me laugh!

5) Trichet and the ECB are gonna continue raising rates just to be mean I suppose?

6) Unless you regard the start of time as Jan 2007, the retail sales are most definitely in a long-term downtrend and that's with all manner of hedonic adjustments.

Nice try all the same so-called economist! There are plenty of economists out there and most of them don't know their ar$es from their elbows IMO. You're not an economist, you're just someone who gets all their info from CNBC. Try scratching a little harder and look beneath the surface, that way you may discover what's really going on with the US/Global economy.

Oh, and oil's not really up over $2 today either, it's just our imagination...

EDIT: For the uninitiated, US CPI figures exclude food and energy conveniently, as US energy prices have risen 25.3% for the first four months of 2007 alone. Any economist that believes it OK to ignore energy costs in the States is an idiot of the highest order...

How's about the figures including food and energy Sebastian?

With all due respect, you should refrain from trying to be smart and claiming to be an authority on such matters, unless you actually know what you are talking about. Any unassuming follower of US monetary policy will know that the US Fed use core inflation gauges over headline gauges in considration of monetary policy. In fact, this is not merely a Fed preference, many of the world's Central Banks use the core gauge or a combination of the core and headline gauges. It is an established fact that the Fed use the core consumption gauge (CPE) and the core consumer price index and in fact their favoured gauge is the CPE measure (2.1%), which is currently running lower than the core CPI gauge (2.3%). Food and energy are excluded because they are volatile costs which can fluctuate greatly. If energy costs are running higher than their average over a few months, the higher costs will eventually feed their way into core prices, e.g. airline tickets rise in price. Similarly if energy costs fall on average over a few months, core prices should also fall. The headline and core rates will therefore differ, but core rates can often run higher than headline rates, e.g. when lower fuel costs are slow to be reflected in underlying consumer prices. Today in Canada, the core rate was reported at 2.5%, while the headline rate was 2.2%. Just because the Fed use core consumption and price gauges in helping with monetary policy decisions doesn't mean they are 'idiots.' They know far more about inflation and its impact on the US economy than the likes of you or me could ever hope to.

On US Retail Sales, sales are growing, albeit at a slower pace. There is not a 'downturn.' If sales continue to grow, it is an upside growth trend. What has happened is a slowdown in the pace of growth, not a 'downturn.'

You obviously laugh off inflation figures for the euro area and Japan. If you look more deeply and specifically at the 2 biggest economies in the euro area, you will find the inlfation rates in both Germany and France are consistent with the euro wide rates. And that goes for both their domestic headline rate and their harmonised rate, just in case you think there is one real set and one doctored set for the ECB.

Japan is the second biggest economy in the world and there is plenty to learn from it in terms of its current account success and to test generalised theories on inflation. 1) Japan is the second biggest importer of oil in the world and despite rising oil costs to which you refer, this has not had a hugely adverse impact on inflation. 2) The Japanese yen has recently hit a lifetime low against the euro and is close to a 2.5 year low against a weak dollar - this dispels the notion that currency weakening will automatically lead to heightened inflation.

If you think Japan is merely a freak, please take a look at Switzerland. And as for adding other countries to the list, I really don't have the inclination to spend any more time on this point as it is clear you neither know or care little about the whole subject matter.

As a final comment to you, I am posting to this forum because I find many of the subjects of interest and based on my background and experience I think I may be able to add some value, purely on macroeconomic topics and currencies, because that's what I studied for many years and what I now work at.

[Starcrossed]

Stick around, Sebastian, I enjoy the discussions that contain depth and conceptual thinking. I've learnt a lot from this site and hope to keep on learning.

[libspero]

@ Sebastian

Things get a little heated here so don't pay much notice to the personal attacks.. WA must have had a bad day (he's usually so cute and fluffy).

80 posts in 10 days... nice work and might I add, welcome to the forum.

As for interest rates getting to 7%, I hope they do soon or I'm gonna be forced to buy. I recon I have until about Christmas before I am forced to buy an overpriced sty with ensuite slop-bucket.. A decent change in sentiment caused by interest rates and faltering prices might be enough to postpone it.

Fingers crossed

[Sebastian]

Look Sebastian, tbh with you, I haven't even bothered reading your latest post fully. Why you may ask? Cos it's too verbose and it's full of officialdom.

I've followed your posts for a few days now and all I can say is, that as far as I'm concerned, it's all official line stuff. You claim to wish to stick to the facts, yet all you offer is gov't spin and I get enough of that from BubbleVision and TOUT TV as it is.

Look at your post, you sound as if you've swallowed a book published by the FED and you preach as if it's all true and beyond dispute.

Far from claiming to be an expert, I'm merely highlighting that your views are nothing more than what one hears from officialdom and can be found in abundance from the mainstream media which you seem to accept as gospel. When challenged, you merely avoid the more difficult questions i.e. do you believe it wise to exclude energy and food prices from inflation calculations?

OK, lets move on to the US economy. Once again, though I really don't know why I'm even bothering with your Ben Bernanke impersonation. You state US growth has slowed down rather than there being a downturn, but you fail to consider that most of the purported growth can be simply put down to mal-adjusted price inflation. You preach as if everything uttered by the FED is the truth, the only truth and that alone makes me highly suspicious of you.

Furthermore, you choose the likes of Japan and Switzerland as your typical representatives of developed nations, yet you neither care to mention the importance of the effects of the global carry trade upon these two nations nor their underhanded antics at preserving the CT. So once again, half truths at best and plain lies the rest of the time.

Having failed so miserably to answer any of my questions with your high-brow approach which lacks any degree of honesty I might add, you resort to a high and mighty attitude instead whereby you claim to be superior to me just because you're an economist.

Well, if that's your attitude then I'm looking forward very much to tripping you up at every opportunity and if you don't like smart ar$es, then may I suggest you go elsewhere as this is a public forum for expressing opinions, opinions that may or may not be challenged. It is not, a platform for spinning official BS unhindered, so get over it you pratt.

What? You think just because you sound like a textbook that you know better than everyone else, is that it?

Finally, I don't give a damn how many years you've been studying, it's all meaningless when spend all day spouting official crap at us. Christ, you're about the most stuck up poster I've ever had to pleasure to encounter on this forum. Are you David Smith by any chance cos you sure sound as pompous and incorrect as he ever could be?

PS. If what you say is true with regards to your training then I would strongly urge you to seek a refund cos you're sh!t!

Look! Even your fans are idiots...

What the fook are you on about libspero? If rates do not go to 7% soon, I'd be forced to buy!"

Why may I ask? If you're that desperate to buy then do it now cos rates ain't gonna go up to 7% overnight and only a complete fool would believe they would in the first place, nuff said...

Look at the subject line on the thread – Interest rates. Interest rates are set by the Central Bank and not by you. You may well disagree with the system employed to make monetary policy decisions, but if one is trying to gain an insight into where interest rates may be headed, they will learn more from knowing what the Bank of England, US Fed actually use in making their decisions than listening to you trying to argue what you believe they should be using.

Your argument on inflation is just plain wrong. Changes in energy and food costs do feed into core prices, but just not immediately. As food and energy prices can alter significantly in either direction, they can greatly distort short-run inflation figures. You are so hung up on oil prices that perhaps you should look at the recent trend in the cost of oil. Prices peaked at $78 last August and declined all the way to $50 a barrel in January, before climbing again. One of the reasons core inflation prices themselves rose significantly in the middle and towards the end of last year had to do with rising energy cost over the previous 6 months. Even if you are to look purely at oil as an inflation measure, from $78 to $50 a barrel in January is a fall of 36%. If you want to take today’s price of $65, that is still 16% below last Autumn’s peak. You can’t base monetary policy on such wild fluctuations in individual key components of inflation and that is the reason why core prices are often more commonly used for setting policy. If oil prices continue to remain inflated, these prices will eventually be reflected in almost every single thing we buy, as higher input costs for producers and service providers will result in higher costs charged to the consumer, almost without exception.

And finally back to the US economy. US unemployment is running at a historically low 4.5%, people’s income rose the fastest in 12 months in the first quarter of this year, despite the growth slowdown. While the construction sector remains in contraction, the manufacturing and services sectors are beginning to show signs of rebounding. The economy has its problems, but it’s hardly on the brink of recession.

Japanese GDP did significantly surpass that of the US, UK and euro areas in quarter 4 last year, but then it was coming off the back of a very poor annualised 0.8% GDP in quarter 3. Its GDP rate then fell to 2.6% in quarter 1 this year from the 5% recorded in quarter 4.

As for your personal insults, I’m sorry but I don’t trade in them.

[Casual Observer]

Look at the subject line on the thread – Interest rates. Interest rates are set by the Central Bank and not by you. You may well disagree with the system employed to make monetary policy decisions, but if one is trying to gain an insight into where interest rates may be headed, they will learn more from knowing what the Bank of England, US Fed actually use in making their decisions than listening to you trying to argue what you believe they should be using.

You make a good point here.

Many posters try to guage what will happen based on what they think ought to happen, rather than what central banks and other policy makers are likely to do. When talking about IRs for example, it's pointless arguing that the UK CPI underr ecords. The point is that the MPC are targetting CPI 2%, end-of story.

[jackalope]

you pratt.

you're about the most stuck up poster I've ever had to pleasure to encounter on this forum.

I would strongly urge you to seek a refund cos you're sh!t!

Look! Even your fans are idiots...

No need for any of that just because Sebastian owned you in the debate.

[Guest grumpy-old-man]

You make a good point here.

Many posters try to guage what will happen based on what they think ought to happen, rather than what central banks and other policy makers are likely to do. When talking about IRs for example, it's pointless arguing that the UK CPI underr ecords. The point is that the MPC are targetting CPI 2%, end-of story.

pot-kettle-black.

[Casual Observer]

pot-kettle-black.

I want prices to fall but don't think they will, having considered a number of factors. I hope I'm wrong.

You want prices to fall, so you will consider no opposition to that position.

See the difference?

Edited May 18, 2007 by Casual Observer

[Guest grumpy-old-man]

I want prices to fall but don't think they will, having considered a number of factors. I hope I'm wrong.

You want prices to fall, so you will consider no opposition to that position.

See the difference?

incorrect, in fact if all the pointers were pointing towards a boom then I would consider buying. They are not, they are all pointing towards an almight crash, so I will rent.

edited - or in fact stagnation, then I would buy as I need a family home.

Edited May 18, 2007 by grumpy-old-man

[DaggaDagga]

Keep it up. This is a good thread. There's some good info between the toys that are now all over the place.

[Casual Observer]

incorrect, in fact if all the pointers were pointing towards a boom then I would consider buying. They are not, they are all pointing towards an almight crash, so I will rent.

edited - or in fact stagnation, then I would buy as I need a family home.

How comes you haven't got one?