Thursday, Jul 20, 2006

Bank warns imports risk stoking inflation

Times Online: Bank warns imports risk stoking inflation

Sir John Gieve, the Deputy Governor of the Bank of England, today gave warning that policymakers "will not hesitate to change interest rates" to keep inflation on track as the deflationary benefits cheap imports show signs of retreating.

Posted by bobed @ 04:22 PM (585 views)
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1. Sloth said...

The deflationary effects of Imports where masking the huge inflation (m4) in the economy.

The government merely used this opportunity to grab more off savers while they wouldn't notice.

Friday, July 21, 2006 11:25AM Report Comment

2. Jimmy James said...

"Over the past year, the downward trend in the prices of imported goods has stopped and import prices have started to rise, even after excluding oil and erratic items,"

Interesting stuff! This is the most important - and least talked about - element of the future inflationary picture that the UK faces: in short the removal of the deflationary effect of China from the CPI. Or in a bit more detail: China no longer has the ability to both absorb rising commodity prices and continue to depress wages. You saw it hear first - THE major change from the past decade at UK PLC, this will, I imagine, shift the 'natural' level of UK interest rates back up a couple of percentage points.

Friday, July 21, 2006 12:22PM Report Comment

3. bidin'matime said...

Absolutely. It was always false to assume that globalisation would deliver permanently low inflation - these underpaid workers will inevitably demand a piece of the action eventually.

The government should be putting out 'public wealth warnings' to help people protect themselves from the impending financial disaster that so many now face.

Friday, July 21, 2006 01:30PM Report Comment

4. Sloth said...

Globalisation WILL deliver a defaltionary effect due to the increased level of competition.

Friday, July 21, 2006 02:01PM Report Comment

5. Jimmy James said...

"Globalisation WILL deliver a defaltionary effect due to the increased level of competition."

Not necessarily. You have to remember the reason why current Chinese produce is so cheap - in large part it is based on a deliberate export oriented strategy to hold prices down - through supressing wages and keeping the currency artificially low. This stragegy was only feasible for a short period of time - as the pressure of wage growth and the upwards pressure on the Chinese currency and greater levels of saving means that China's export prices is being forced up. China has also shifted the emphasis away from export led growth to trying to kick start its own domestic market - again something likely to push the currency and prices upwards.

I don't think people realise how cheap China was in comparison to other developing countries - a hell of a lot cheaper: China was beating some poor countries handsdown when China had a 20-30-40% tariff disadvantage!!. Having these countries come on stream (and remember not all countries are anywhere close to having the capacity to produce decent manufacturing or electronics goods) would not counteract the impact that a shift upwards in Chinese prices will have.

Friday, July 21, 2006 03:35PM Report Comment

6. sirgoogle said...

I think I mentioned a couple of weeks ago that the BoE (and MPC) are cold-blooded professional bankers and are only worried about 2 things - Sterling and rising Inflation (as it affects Sterling too). Any Mortgate payer, BTLer or MEWer is living in fairy land if they think that interest rates are being kept low just to protect them. They will shoot up if there are threats building to Sterling.

Friday, July 21, 2006 07:15PM Report Comment

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