Thursday, Jun 22, 2006

Inflation Outlook for Key Economies

Money Week: How big is the inflation threat really?

This piece comments on the outlook for inflation within key economies, notably UK, US, Europe, China and Japan. It ends with the belief that global growth will take a turn for the worse and therefore there is logic against rising interest rates. It states there is no reason for UK rates to rise.

Posted by talking rot @ 10:14 AM (525 views)
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7 Comments

1. Devil's Advocate said...

So what is everyones opinion on this article, don't tell me they have an alterior motive and there wrong.

Thursday, June 22, 2006 11:34AM Report Comment
 

2. harold said...

DA, it's important not to think of Money Week as a monolithic publication espousing a single view, as in "they have an alterior [ulterior] motive". All "they" do is publish half-decent articles from various sources. Okay, so Money Week have found someone who thinks rates should hold or fall - a few weeks back they found someone who thought the opposite:

http://www.moneyweek.com/file/13114/why-uk-interest-rates-will-rise.html

And no doubt things will be different a few weeks from now. However, if the governor of the BoE is anything to go by the general consensus - despite Jeremy Batstone - is that rates are likely to rise. As to the accuracy of the article, anyone basing their views of inflation on RPI and not the more complex relationship between money supply and real GDP growth is likely to think that inflation is benign.

Thursday, June 22, 2006 11:55AM Report Comment
 

3. Surfgatinho said...

Money Week do have some good articles but I don't think this is the best.
It mentions inflation in China but doesn't seem to link this to inflation in the UK. With half the stuff we buy coming from China how does that work?
Also, it seems a little strange that a fair few of the central banks are worried about inflationa and most are raising IRs. If this continues eventually the pound will fall causing, yes, inflation.

The only reason we don't have inflation now is because of cheap imports. I don't see how these can go on for ever and I think the article contradicts itself

Thursday, June 22, 2006 12:20PM Report Comment
 

4. devil's advocate said...

What about the fact that we have cheap imported labour due to high levels of imigration this is an important factor which is not abou tto change. And the fact that inflation has been propped up by credit from people who have re mortgaged. That is not going to continue as money tightens. These factors will reduce inflation which may affect the need for rate rises.

Thursday, June 22, 2006 01:09PM Report Comment
 

5. Ticktock said...

Another view, is that inflation is rising because central banks have printed too much money in order to head off deflation, which is the real danger. The Fed no longer publishes M3 figures (money supply). Funny that.

Thursday, June 22, 2006 02:54PM Report Comment
 

6. harold said...

"What about the fact that we have cheap imported labour"

Well what about it? Sure, it helps to keep the cost of some services down but does nothing to stop asset bubbles from forming by increasing the amount of money in the economy. In a sense what the government is doing is diluting the value of assets by allowing more money to be pumped into them by private banks issuing more loans (through a practice known as fractional reserve bank lending) - a slightly counter-intuitive idea, but there you go. When people realise that extra money doesn't actually = MORE assets is when you have real inflation (partly the reason for the governments interest in peoples expectations of inflation). So far the government have masked this effect due to cheap imports from China, a situation that is now changing as a number of bloggers on this site have commented upon recently.

It's interesting to note during the era of "cheap imported labour", another growth industry was DIY stores. In other words, despite an army of Polish electricians, plumbers, plasterers etc., the luxury of "cheap imported labour" was still beyond many people's reach, and remains so.

Thursday, June 22, 2006 02:55PM Report Comment
 

7. inbreda said...

As an individual, my own perception of inflation bears no relevance to champagne (in the basket), and inflation is also fairly irrelevant to me provided my savings interest and wage inflation keeps pace. If cheap imported labour brings wages DOWN, it is, to me, the same as inflation. It's all relative.

People won't be able to afford their mortgage if EITHER a) interest rates go up, OR b) their wages come down.

Thursday, June 22, 2006 03:49PM Report Comment
 

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