Wednesday, January 17, 2007

Who benefits from high inflation?

Winners in the inflation stakes

The Telegraph looks at how inflation can improve some people's financial situations. Debtors see the real value of their debt shrink, homeowners see the value of their property soar, and people in index-linked savings accounts earn good interest.

Posted by jellycaster @ 02:03 PM (574 views)
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16 thoughts on “Who benefits from high inflation?

  • your comments one the Telegraph article are misleading in that they suggest inflation will result in house prices soaring. This is not what the newpaper article is actually saying.

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  • This article reminds me of a US campaign during WWII to embrace Uncle Joe (Stalin). It paints a rosy picture of friendly Uncle inflation come to save us all from those ghastly interest rate rises.

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  • Yes! Inflation is great….but only if Interest Rates stay low. If interest rates rise with inflation – your house value may well plummet as demand disappears because mortgage repayments are higher, and any debt you have (mortgage or otherwise) will now cost you more to service.

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  • “Homeowners who have already got their feet on the property ladder are sitting pretty when house prices soar”

    It seems to suggest that inflation (in general) means that the value of property will rise.

    Considering that property has soared (i.e. high house price inflation) in value while (general) inflation and interest rates were low, it should really entertain the possibility that house prices might plummet when (general) inflation and IR are high.

    It doesn’t even consider the fact that things may be different this time round given the UK debt being higher than ever.

    Nonsense article.

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  • Also point two states that inflation is good for reducing real debt, but fails to mention it will result in an increase the maintance of that debt. didn’t give us the calculations on that did they!

    hokum me thinks.

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  • Dohousescrashinthewoods says:

    Inbreeda, I agree, what nonsense! Don’t they learn anything in primary school, sorry, university these days?

    Sure asset prices rise, but, er, isn’t that the definition of inflation?
    If double the money buys half what it used to you are left at precisely square one.

    I think what she is referring to is “assets as an inflation hedge” or, to put it in plain English, if you keep your cash under the mattress, it will halve in value, if you invest it can keep pace with or even beat inflation. I don’t imagine assets appreciate any faster in real terms with or without inflation?

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  • “Donna Bradshaw, from IFAs IFG Group noted that as interest rates tend to go up with inflation, people reliant on savings income, such as pensioners, will gain.”

    That’s not what most pensioners say! The effect of inflation over the past few years has far outstripped the recent rises in interest rates and that’s likely to continue.

    From this article you should buy a house because HPI is equated to general inflation (Hello! CPI vs RPI!!!); you should rejoice in your large debt being eroded (whilst conveniently forgetting about higher interest rates); rejoice in your savings being worth more due to larger interest rates (conveniently forgetting about inflation causing everything else to cost more) , oh, and your shares will do well too as inflation is caused by rising prices = good news for companies.

    At best it’s contradictory. At worst it’s just plain wrong.

    Muppets.

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  • The press seem to have really lost the plot lately, desperately falling over themselves to explain why what is happening, is happening, without admitting they have been totally wrong to date.
    The sudden shift in coverage must be sickening for all those who have been taken in up to now with the ‘Cental Bank vigilant against inflation lie’ and the ‘inflation slain for good’ nonsense. (why do they think their pile of bricks has bubbled up in price so much?)
    How can they carry on pretending to be ‘experts’, rather than just the ‘copy and paste’ no nothings that they so clearly are, when at every major tun in the economy they are consistantly wrong.

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  • Ticktock, you are a commie, but on that point I have to agree.

    The press are falling over themselves to reassure that everything is okay. The trouble is that the public haven’t believed that for some time. No-one thinks Gordon Brown has done a good job any more, and we should have faith that people don’t let it slide when they know they are being hoodwinked.

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  • The person who wrote this rubbish is the kind of idiot who would bet on every horse in race, and then be happy he won…once.

    It’s a wonderfull bit of spin.

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  • Blair camp will hold on until things go really sour, at which time step forward (drum roll please) the biggest mug in GB: GB!

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  • What sickens me is that they put themselves forward, and their newspapers put them forward, as experts, when they really have such a shallow comprehension of the situation. Either that or they are cynical liars, as some have suggested.

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  • Inflation is only useful for someone who buys when house prices are low due to the high cost of borrowing. It has the opposite effect where house prices were previously high due to low inflation. The movement from low to high inflation (and therefore low to high interest rates) will hit those with no ability to service the higher interest rates which in the current environment will be many. Does the writer of this article seriously think that higher interest rates are good for house prices??

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  • I think what this report is trying to say is back when interest rates and inflation much higher ( and house prices much lower ) if you borrowed loads of money inflation ( ie wage rises ) made that less painful year by year, sadly whats happened now is interest rates and inflation are low and borrowings collosal, year inflation would reduce them for the few that could survive it.

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  • “how inflation can improve some people’s financial situations. Debtors see the real value of their debt shrink”

    I’m sorry- but that is wrong.

    Inflation doesnt shrink debts. Debts ONLY SHRINK if the incomes available to repay them rise with inflation. THAT is not happening. Incomes are rising a bit, but thanks to Mr. Brown’s increased taxes, after-tax incomes from many people are falling – unless they happen to be working in the City earning huge bonuses.

    For some non-mainstream thinking, check out: http:///www.GlobalEdgeInvestors.com

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  • I always believed that the ‘savings’ rate of interest to be normally 3% above the rate of inflation, this would normally mean that savings interest rates should not be able to stay below the rate of inflation for any length of time, therefore as inflation rises so do interest rates payable on borrowed money-in a normal world

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