Interest Rates To 6% Then 6.25% In 4 Mths

[headmelter]

Bank of England signals interest rate rise

By Richard Blackden

"Consequently, with the growth outlook remaining positive we continue to look for UK rates to be raised to 6pc in September with a further rise to 6.25pc three to four months further on."

Nice Christmas present for my ISA.

[cells]

No: 0% price inflation is quite possible in an economy based on fractional reserve banking, just as 10% price inflation is quite possible in an economy based on 100% reserve banking.

Inflation is defined as an increase in the level of prices in the economy. This is determined by many factors, including (if you subscribe to some form of monetarism) the rate of growth of the money supply.

that is not inflation, that is general supply and demand and changes in price. For example if one year we had really bad foot and mouth and lamb meat rose in price that is not inflation.

In a 100% reserve banking system, there would not be any inflation! (just so your clear, a 100% banking system is EXACTLY the same as a gold standard)

[benj]

that is not inflation, that is general supply and demand and changes in price. For example if one year we had really bad foot and mouth and lamb meat rose in price that is not inflation.

In a 100% reserve banking system, there would not be any inflation! (just so your clear, a 100% banking system is EXACTLY the same as a gold standard)

Absolute rubbish. Go and pick up any A-level economics textbook and look in the glossary. Inflation is an increase in the price level. Period. It does not matter what causes it. If meat rises in price, that is inflation. Sheesh.

If all shopkeepers in the economy put up their prices, there is inflation in the economy. It doesn't matter why they did it, and it doesn't matter whether they are using fiat money or gold bullion as the medium of exchange.

[assetpriceinflation]

Can someone answer this.

Why do they always seem to wait for so long before raising rates? For the past few months there has almost almost been the theory that "rates will go up in .......... (insert month name here)" why do they wait? Surely if there are pressures on inflation it would be better to raise asap?

Because the most important factor in all of this is inflation expectations. If everyone thinks there isn't going to be inflation then they don't try and get bigger pay rises / push through higher price rises.

I think that this report gives the BoE the chance to hold for the rest of the year providing CPI doesn't trend upwards agin.

Edited August 8, 2007 by assetpriceinflation

[cells]

Absolute rubbish. Go and pick up any A-level economics textbook and look in the glossary. Inflation is an increase in the price level. Period. It does not matter what causes it. If meat rises in price, that is inflation. Sheesh.

If all shopkeepers in the economy put up their prices, there is inflation in the economy. It doesn't matter why they did it, and it doesn't matter whether they are using fiat money or gold bullion as the medium of exchange.

If everything is going down in price but say beef is going up. do we have inflation or deflation? do we raise interest rates to make the beef cheaper or do we decrease interest rates to make the rest more expensive?

general prices rises across a large basket of goods is inflation, not an single item, that would be market forces, capacity ect.

so ask yourself, what can cause the increase in the price of bread, oil, stamps, property all at the same time? surely the bread maker is independent from the stamp producers, how can they BOTH be going up. how can a seemingly random collection of thousands of items always be rising in price. The only answer to that is there must be more money chasing these goods, ie the more money caused the inflation.

The price of computers have been going down in the last 10 years dramatically! Is that deflation like you say? Or the fact that better manufacturing processes are used and more are built making per unit sales cheaper?

inflation is printing money in its simplest form, create more money = inflation. Destroy money = deflation.

Edited August 8, 2007 by cells

[davidg]

ask yourself, what can cause the increase in the price of bread, oil, stamps, property all at the same time?

an increase in the price of oil say... as everything in our economy depends upon it. Stamps, bread, building houses.

[Jason]

I noticed that too. Can we conclude if this is true that the reverse must therefore also be true, ie if they are missing the inflation target now then mistakes were made 2 years ago which led to inflation being higher now than the target. So what did they do 2 years ago with regard to interest rates? They lowered them by mistake.

Quite right.

But Mervn King said "we don't look at past decisions, we are always looking forward and thinking of the next meeting" (or something like that) he then went on to compare themselves to a football manager who always looks at the next match, rather than hindering on previous matches.

Obviously footie managers never watch previous matches to identify mistakes, and what to focus on during training sessions.

This was in the inflation projection report, Q&A section (I think back in May07).

[cells]

an increase in the price of oil say... as everything in our economy depends upon it. Stamps, bread, building houses.

that would not increase everything buy the same amount though, why is it that all goods roughly "inflate" at the same rate?

so what can increase a basket of thousands of goods by roughly the same price?

The only answer is an increase in money, which is what causes inflation

me price?

[tackle2004]

Short version, BOE have the excuse to raise rates a few times. Next month and we've looked at the recent history of rises and figure it'll keep the upward trend. They aint gonna have the balls to raise two months in a row but figure .25 is a like pissing in a strong wind and they'll bang one in either Nov or Dec followed by more next year but we don't want to say that because it'll cause trouble.

6% Sept, 6.25% Nov, 6.5% Feb. Oh shit they are going down put HPI in the CPI bundle. 6.5% for a while.

If this happens it will be with out doubt a massive correction

[benj]

that would not increase everything buy the same amount though, why is it that all goods roughly "inflate" at the same rate?

They don't.

The idea that "persistent inflation is a purely monetary phenomenon" is basically a hand-wavy version of the quantity theory of money, which has been around for hundreds of years. And it's got a lot going for it. I would certainly not disagree that the creation of a lot of money (either by the government/central bank or by the credit channel) can be highly inflationary. But it's more complicated than just "M4 goes up == inflation".

[notthereyet]

Can someone answer this.

Why do they always seem to wait for so long before raising rates? For the past few months there has almost almost been the theory that "rates will go up in .......... (insert month name here)" why do they wait? Surely if there are pressures on inflation it would be better to raise asap?

They slowly increase interest rates to prevent giving the economic system to much of a shock.