Cpi To 3%

[Kingmaker]

Biggest MoM jump since 2002

[Kingmaker]

http://www.bloomberg.com/apps/news?pid=206...&refer=home

[muggle]

BOE

3.000000000000000000% ?!

Still sounds too low to me!

[nickincash]

The MoM increase was 0.8%. If this were repeated for 12 months it would give a CPI increase of 10.0% YoY. Wow.

[RichM]

Telegraph, 13-05-2008, 10.22am - Inflation hits 3pc as food and fuel costs soar

http://www.telegraph.co.uk/money/main.jhtm...cninflation.xml

[Guest An Bearin Bui]

Biggest MoM jump since 2002

Houston, we have ignition

Protect yourselves

(thought I would stand in for cgnao since he no longer posts here)

[crash2006]

now what lower rates king? lol

[lulu]

now what lower rates king? lol

There must be a mistake here, Gordon Brown repeatedly tells us that inflation is low, He must be right, he is our Prime Minister.

[Guest pioneer31]

Mr King has already warned that inflation is set to rise above 3pc later this year - the target is just 2pc - but few analysts had expected it to rise to such levels so soon

Surely not?

I don't spend a single penny before consulting an analyst/economist/professional guesser.

[Kingmaker]

RPI 4.2%

Interestingly sterling barely even flinched - market doesn't believe BOE is done cutting rates.

[thedebtisreal]

RPI 4.2%

Interestingly sterling barely even flinched - market doesn't believe BOE is done cutting rates.

Surely if they believed there was going to be cuts the pound would be falling.

I think IRs are going to be pretty steady for the next year.

[Kingmaker]

Surely if they believed there was going to be cuts the pound would be falling.

I think IRs are going to be pretty steady for the next year.

Not so. Before the figures were released, the concensus was for a 2.6% rise - giving scope for rate cuts. There was downward pressure priced into sterling.

Figures are then released showing lesser scope for those rate cuts therefore sterling should've rose. It didn't.

[thedebtisreal]

Not so. Before the figures were released, the concensus was for a 2.6% rise - giving scope for rate cuts. There was downward pressure priced into sterling.

Figures are then released showing lesser scope for those rate cuts therefore sterling should've rose. It didn't.

Quite possibly.

I tend to think that Sterling's fall has more to do with the fact we exported £700 billion worth of mortgages last year and about £100 billion now.

Not all currency movements are rate speculations. Either way, there is no scope for cuts now.

[It is different this time]

So inflation is rocketing

Lending is restricted so no more cheap credit

No more HPI to support people's unsustainable spending.

doesn't look good, I wonder how Mr Brown can spin this. Spin it if you can!

[Kingmaker]

Quite possibly.

I tend to think that Sterling's fall has more to do with the fact we exported £700 billion worth of mortgages last year and about £100 billion now.

Not all currency movements are rate speculations. Either way, there is no scope for cuts now.

No doubt the Uk's deterioriating economic state is pulling sterling down, however i was just focussing on the 5 minutes either side of the announcement to see the market's reaction to it.

Sterling will likely fall whatever the boe does or doesn't do.

[dandare500]

They always say they target two years ahead. This means they can do what they like as none of us are Mystic Megs, but they are supposed to know what they are doing!

[VacantPossession]

There was a news piece last night on inflation, and we are persuaded that the CPI figures are not that badly out. The problem is, the "basket of goods" includes the kind of products that are NOT purchased every day or every week by consumers. It is completely useless to include hi-fi's, cars, domestic white goods and computers in an inflation index which is meant to be a guide to weekly or monthly expenses of the average family. These items are purchased on very rare occasions compared to the weekly food shop, petrol, council tax bills and general utilities. But the CPI basket does not sufficiently take this into account and is not weighted to allow for this. Furthermore the CPI includes goods which are the ones consumers drop when the going gets tough, but they still have to buy food, and fuel, and pay their bills.

So if the CPI is ever going to be truthful or useful it has to reflect the practical expenses of a given household on the basis of SURVIVAL or SUBSISTENCE spending. If the price of plasma screens has reduced in a given period that is irrelevant to the vast majority of basic consumer spending. The government departments responsible for assessing these weightings know this perfectly well but of course still bias the figures to include as many luxury items as possible in order to keep the notional CPI figures down. In short, they are a complete con and should be disregarded by any thinking person.

VP

[IMHAL]

There was a news piece last night on inflation, and we are persuaded that the CPI figures are not that badly out. The problem is, the "basket of goods" includes the kind of products that are NOT purchased every day or every week by consumers. It is completely useless to include hi-fi's, cars, domestic white goods and computers in an inflation index which is meant to be a guide to weekly or monthly expenses of the average family. These items are purchased on very rare occasions compared to the weekly food shop, petrol, council tax bills and general utilities. But the CPI basket does not sufficiently take this into account and is not weighted to allow for this. Furthermore the CPI includes goods which are the ones consumers drop when the going gets tough, but they still have to buy food, and fuel, and pay their bills.

So if the CPI is ever going to be truthful or useful it has to reflect the practical expenses of a given household on the basis of SURVIVAL or SUBSISTENCE spending. If the price of plasma screens has reduced in a given period that is irrelevant to the vast majority of basic consumer spending. The government departments responsible for assessing these weightings know this perfectly well but of course still bias the figures to include as many luxury items as possible in order to keep the notional CPI figures down. In short, they are a complete con and should be disregarded by any thinking person.

VP

Not only is the CPI a con from the perspective of non-essential items being in the basket - it is also a con from the following perspective that few people realise:

Take for example petrol..... If last year in May it had gone up 10% in one month and this year it had not moved from that figure it effectively means that their is no inflation this year - i.e. that hit has been taken so it does not show up even tho we still pay the elevated price - that means inflation 'CPI has no memory'.

What this means is that the CPI/RPI or whatever index you use is always geared to ever inceasing prices - it does not allow general price decreases because the BoE will cut interest rates and print more money if that happens.

So once inflation has hit - it is effectively a permanent hit on disposable income - you cannot get it back - ever.

HAL

[Realistbear]

We are catching up with the US at a slightly faster pace. The broader economy is just now being infected by the HPI disease. Phase 2 will get very ugly with massive job losses and spiking consumer prices including some dramatic increases in fuel. Oil at anything above $80 will have an impact. At current levels it will send us into a deep and long lasting recession. We no longer have to think about what is going to happen to inflated house prices. 50% down from the peak in real terms may be on the low side given what is in the pipeline. A quick glance down the Telegraphs Business section says it all:

http://www.telegraph.co.uk/money/main.jhtm...mp;targetRule=2

UK inflation hits 3pc

News will make it hard for BoE to cut rates.

Pound falls as housing gloom deepens

Redrow cuts jobs as sales dry up

Northern Foods may axe 730 jobs

HP close to $13bn deal for EDS

Alliance & Leicester cuts lending

Lender to pull £4bn from UK market.

CML: mortgage lending down 50pc

Blundering minister lets slip housing gloom

EU launches assault on bonuses

Finance ministers mull plans to curb pay.

Labour may move on overseas tax

As far as inflation being at 3%, the government need to stop trying to mislead the people. No one believes them anymore.

Edited May 13, 2008 by Realistbear

[Disillusioned]

Houston, we have ignition

Protect yourselves

(thought I would stand in for cgnao since he no longer posts here)

In his honour:

Not only is the CPI a con from the perspective of non-essential items being in the basket - it is also a con from the following perspective that few people realise:

Take for example petrol..... If last year in May it had gone up 10% in one month and this year it had not moved from that figure it effectively means that their is no inflation this year - i.e. that hit has been taken so it does not show up even tho we still pay the elevated price - that means inflation 'CPI has no memory'.

What this means is that the CPI/RPI or whatever index you use is always geared to ever inceasing prices - it does not allow general price decreases because the BoE will cut interest rates and print more money if that happens.

So once inflation has hit - it is effectively a permanent hit on disposable income - you cannot get it back - ever.

HAL

Great post. Surely, if something goes up in price and then holds, wages will (eventually) catch up, which means that you do get back on to the same par?

[Sledgehead]

Capital Economics seem to think this is temporary: Inflation jumps to 3pc but it will not last

Wonder if they'll get to add inflation to their list of hopeless prognostications that, within the sapce of 4 years, have included equities, property, bonds and interest rates?

[misfit]

Biggest MoM jump since 2002

Economists are talking about another interest rate fall soon but I suppose this makes a cut very difficult to justify now.

We will have to wait and see if this falls back

[IMHAL]

In his honour:

Great post. Surely, if something goes up in price and then holds, wages will (eventually) catch up, which means that you do get back on to the same par?

Not necessarily so - what tends to happen is that inflation hits and then there is a delay whilst empoyers and employees grapple - but this time you have had your wage buying power eroded - wages lag inflation. Also in this climate you can bet that those not in unions i.e. most of us that do not work for the government, will not see wage increases match CPI never mind the real level of inflation.

Disposable income will get eroded quite quickley in this environement - we are headed for ressession.

HAL

[Thread Killer]

Here's another in his honour

What happened to the man of doom?

[Dosser]

Dear Gordon,

3% (we both know that's after fudging the numbers). Thanks to turning a blind eye to consumer debt and record levels of tax & spend, you are truly screwed.

You can't honestly expect me to get you out of this mess. Never mind, at the end of my tenure, I shall move on to a nice academic role or perhaps just retire, I will be largely forgotten about.

At the end of your tenure - which should be rather soon - you will go down in history as the villain who ushered in 'the bad times'.

In the meantime I will keep interest rates on hold.

Yours,

Mervyn