Tuesday, February 12, 2008

The horrible truth about inflation

The grim truth about inflation: it just won't go away

Despite the impending global slowdown, inflation is still very much a threat. And it's about more than rising food and energy prices too - import prices are also on the rise. It looks like interest rates won't be falling as fast as the City had hoped.

Posted by mary @ 10:49 AM (765 views)
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5 thoughts on “The horrible truth about inflation

  • I think it’s pretty clear now that moneyweek are discredited, and their bigoted views should not be taken seriously.

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  • John Stepek’s article on MoneyWeek is brief but insightful as always.

    Quote: ‘And is it a good thing that the price of houses rockets? Well, no, because you end up spending more on an asset that is no better than it was ten years ago – in fact, it’s worse because it’s older. It means that people like hairdressers and other local service providers end up charging more so that they can afford accommodation. So arguably, setting an inflation target that ignores house prices, but treats falling shoe prices as the enemy, is pretty stupid.’

    The governments CPI inflation target seems embarrassingly comical sometimes. Does anyone know of a a web site that contains an easy to digest full list of items into and out of the CPI ‘basket’? The National Statistics site has so much information to get through.

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  • US money supply is exploding after rate cuts to 18.2pc
    The peak of 1971 has clearly been surpassed now.
    If 1993 and 2004 were bottoms does this mean we are in Elliott wave 3 here. If so we have a long way to go before wave 5.

    This extra money will end up in prices in the end. But in the short term will assets such as stocks take off again?

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  • also sold to rent says:

    All this talk of inflation ties in nicely with the wide gap between RPIX and CPI. When we made the crazy switch we moved from a 2.5 RPIX target to a 2 CPI target, a 0.5 gap. However, CPI is now 2.2 and RPIX is 3.4, a 1.2 gap. So ‘real’ inflation as measured by RPIX is once again banging against the old ceiling (3.5) whilst CPI sits merrily close to target.

    And quoting from the great Merv himself in 2004:

    “Of greater significance than the average difference between the two measures in the long run is the observation that the gap between them varies over time, often quite widely, in
    line with changes in the temperature of the economy in general and house prices in particular. At present the difference between the two measures is unusually large. It
    peaked at 1.7 percentage points in June, since when it has narrowed to 1.3 percentage points, but remains well above the 0.5% change in the inflation target. So the change in
    target gives the impression that inflation has moved from above to below target. Does this mean that monetary policy in the coming months will need to be looser under the
    new target than it was with the old target? The answer is no. The large difference between the two measures of inflation at present can mostly be explained by house price
    inflation. It is unlikely that house prices will continue to rise at their recent pace for much longer. We have already seen some slowing since the peak in 2002, and the
    Monetary Policy Committee judges that a reasonable central view is that house price inflation is likely to subside over the next two years or so. The gap between RPIX and
    CPI inflation is, therefore, likely to narrow to around half a percentage point over that period.”

    House price inflation to subside from the peak between 2004 and 2006… didn’t quite pan out that way did it? Instead we saw RPIX at levels that would have required repeated letters to Gordon B.

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  • Such_short_memories says:

    Why the hell doesn’t someone, eg: the unions, produce their own competing consumer inflation statistics? At the moment all we get are the fudged government CPI and RPI figures to look at. The various other stats from manufacturers and food suppliers only deal with specific veins of inflation further up the supply chain. There are loads of HPI reports so why not alternatives for general price rises?

    I for one would be very interested to see an independent set of CPI/RPI figures. Once reconciled with the government numbers we could expose this fiddle for what it really is. Surely there are plenty of interested parties who would benefit from such checks and balances.

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