Tuesday, October 14, 2008

The emergency cut last week did nothing and now we get this stat – disgraceful!

Consumer inflation reaches 5.2%

The UK's benchmark inflation rate hit 5.2% in September, official figures have shown, with energy bills behind much of the rise.

Posted by tyrellcorporation @ 09:48 AM (1308 views)
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28 thoughts on “The emergency cut last week did nothing and now we get this stat – disgraceful!

  • planning4acrash says:

    Inflation is growth in the money supply, m3. Consumer price growth is a therefore a delayed fraction of the symptoms of increased money supply. M3 has been running at around 20% so this 5.2% is a select fraction of that feeding through.

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  • I wouldn’t worry about inflation. Oil is at less than $80 a barril and with economies around the world contracting we may have to worry about deflation more than inflation. With the US base rate a 2%, it will be difficult for the US to combat that problem as rate can’t go below 0%. Fortunately, Europe and britain have more headroom in that area. Also we can expect or hope that the “new” economies (China, India, etc) not too dependent on oil export will be decoupled enough from the world economies to avoid a global deflation. However, I have my doubt about that, just look at how fast their stock market plunged in the last few weeks.
    Deflation is the last thing we need in period of recession in countries already burdened by debt.

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  • planning4acrash says:

    Now guys. When you understand this, you see a fraction of the scientific, imaginary, propaganda control grid, where we all discuss meaningless stats from the missionary of truth, & are placated by fake solutions that don’t change anything.

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  • CEO — Chief Embezzlement Officer.

    CFO — Corporate Fraud Officer.

    BULL MARKET — A random market movement causing an investor to mistake himself
    for a financial genius.

    BEAR MARKET — A 6 to 18 month period when the kids get no allowance, the wife
    gets no jewelry, and the husband gets no s3x.

    VALUE INVESTING — The art of buying
    low and selling lower.

    P/E RATIO — The percentage of investors wetting their pants as the market
    keeps crashing.

    BROKER — What my broker has made me.

    STANDARD & POOR — Your life in a nutshell.

    STOCK ANALYST — Idiot who just downgraded your stock.

    STOCK SPLIT — When your ex-spouse and his/her lawyer split your assets equally
    between themselves.

    FINANCIAL PLANNER — A guy whose phone has been disconnected.

    MARKET CORRECTION — The day after you buy stocks.

    CASH FLOW– The movement your money makes as it disappears down the toilet.

    YAHOO — What you yell after selling it to some poor sucker for $240 per share.

    WINDOWS — What you jump out of when you’re the sucker who bought Yahoo @
    $240 per share.

    INSTITUTIONAL INVESTOR — Past year investor who’s now locked up in a
    nuthouse.

    PROFIT — An archaic word no longer in
    use.

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  • planning4acrash says:

    George Orwell laid it all out in 1984 and Animal Farm. Its what Brisinsky meant when he said that the time would come when nobody cld think 4 themselves & wld only b capable of repeating what they watched on the TV news the night before.

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  • Eyes_wide-open says:

    Please excuse my ignorance.

    I understand what happens when interest rates are above inflation (your savings grow in value, albeit sometimes slowly).

    Is it right to say that now “official” inflation is above interest rates that any savings you have is losing value, so it’s almost not worth having any in the first place?

    If that is true, then what’s the point of being a productive citizen any more?

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  • planning4acrash says:

    Mark. You are walking on dangerous ground there. The owner of this site posts under the user name, ‘Financial Planner’ !

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  • george monsoon says:

    Planning4acrash – Animal farm – a brillant book and I think its time I had another read, given the current state of our society.

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  • mountain goat says:

    I know we should be going into a deflation spiral right now with a hard recession looming. But new financial wizardly is not limited to the fat cats of Wall Street and the City. In todays Animal Farm, financial authorities can also reinvent the rules, inject money, nationalise banks, they don’t even have to bother printing the paper notes for Pete’s sake, its all done by computer. This morning there was a wise guy on the tv predicting inflation will be at 1% next year. No it won’t, these bailouts are going to be paid for by a devaluation of the currency if we are lucky, and insolvency of our country if we are not.

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  • planning4acrash says:

    Yup. Best bit of Animal Farm is how they distil their values 2 four legs good, two legs bad coz the sheep cldnt understand the long version! The sheep didn’t notice when the pigs turn it to four legs bad, two legs good when it suited them! Classic stuff!!

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  • planning4acrash says:

    Mountain Goat. You can report 1% inflation easily by putting falling houses into the stats, simply reverting back 2 RPI inflation. Doesn’t mean that it’ll mean anything, except 2 the sheople. Of course, sheople is a phrase coming from Animal Farm.Read it!

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  • This inflation is not down to growth in the money supply. If it were, we would see salaries increasing with no corresponding increase in goods and services. Salaries are fairly static. This is imported inflation – moneterism cannot stop the initial price rise it can only prevent a second round of price rises caused by wage increases. The MPC have been doing that until this week.

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  • planning4acrash says:

    A key is that m3 stats are even a lie. When the UK govt printed 500bn 2 bail banks, we saw a 50% growth in money right there, literally 50% of our GDP, blood sweat & tears, debased with 1 touch of a Bank of England computer button.

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  • planning4acrash says:

    The general public are ready 2 hear this info now. Todays posts have distilled much of the agenda. Please send them viral, posting them on message boards, sending them 2 your email groups.

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  • This talk reminds me of my student days.

    We all grow up in the end.

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  • mountain goat says:

    P4C “send them viral”

    Goat’s view

    1. “freedom is a road seldom traveled by the multitude”

    2. make friends with like-minded people

    3. exemplify your freedom

    4. viruses are annoying

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  • sold 2 rent 1 says:

    Look what just happened to money supply

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  • We are now living in an “Alice in Wonderland” environment.

    People are living in fear and nhave their collective heads firmly stuck up the @rses of all those who can “save them” from the nightmare future.

    Oh deary me.

    Anyone want to start an alternative?

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  • mountain goat says:

    S2R I saw this chart here but did not understand it. Any ideas?

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  • Charlie Brooker says:

    When the cost of housing was removed from the the defintion of inflation, the rules were bent. Last week, as a cumulative aggregate consequence of that change, all the rules were torn up and thrown away.

    In the present circumstances I don’t see how the Govt is even remotely worried about controlling inflation.

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  • mountain goat says:

    Ah sorry same plot as yours S2R. So it is M3?

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  • mountain goat says:

    Before now those loans were the risks taken by the banks using fractional reserve to amplify their $1 of capital reserves to $40. But now with the bailout the money supply is amplified to match this excessive leveraging done by the banks.

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  • “Where’d all the good people go?” – Jack Johnson

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  • Don’t worry, inflation is on the way down and will be almost non-existant in a few months. Well that’s what it said on the BBC this morning.

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  • mountain goat says:

    Good piece on FT Alphaville Marekts Live today on possible effects of bailout on gold and other metal prices.

    “Long-term, bailouts could create metals price inflation
    In the long-run, base metals prices could pick up again. Supply capacity in many
    commodities remains constrained as the sector has not received the much
    needed capital investment. Thus, while the bailout may help keep banks afloat by
    printing more money, it will not lead to an expansion in metals supplies and could
    bring about a second round of metals price inflation as energy prices recover.
    BE:
    Gold could continue to move higher in three stages
    As the ultimate store of value, we believe three variables can explain changes in
    the price of gold: risk, currency and commodity prices. Departing from this analytic
    framework, we believe gold could surge to $1500/oz in three steps. First, with the
    outburst of the credit crisis in August 2007, a rising risk premium has pushed gold
    up. The second stage will primarily be about USD weakness. Finally, as currency
    markets stabilize, the third stage in the appreciation of gold could be driven by an
    energy price recovery. The main risk to this view would be a very broad and longlasting
    global recession, as a deflationary spiral could reduce gold’s allure.
    PM:
    WOT? $1500 per ounce?????
    BE:
    Possibly. (Just like Goldman’s $200 oil.)
    PM:
    Got any more on that. As I say, readers LOVE gold stuff.
    BE:
    Hmm – should maybe do as separate post, but here’s some extracts.
    BE:
    The first stage is about gold reflecting the right risk premia
    Gold was trading at merely $652.01/oz when the first signs of a credit crunch
    started to show in August 2007. As the financial situation continued to deteriorate,
    gold prices started to push higher, reaching a peak of $1002.95/oz at the time the
    Federal Reserve announced the bailout of Bear Stearns (Chart 42). Since then,
    gold prices have traded side ways despite the increase in risk premia.
    Nonetheless, it is important to highlight that gold prices have held up well in the
    face of a rapidly appreciating dollar and falling oil prices.
    BE:
    Gold’s risk premia is linked to credit markets
    As credit risks increased, investors started to hoard gold which is a real asset and
    completely free of credit risk. The opportunity cost of holding gold also decreased
    after central banks attempted to rebuild investor confidence by cutting interest
    rates. With the FEDs fund rate at 150 bps and 3M T-bill rates at 46bps, implied
    gold forward rates (the difference between the spot and forward price of gold
    expressed as a percentage per annum) running above 500bps are looking rather
    attractive at the moment (Chart 43).

    According to our estimates, the risk premia of gold can be linked to fixed-income
    markets, including credit spreads and real interest rates. For instance, the
    relationship between gold and asset swaps, the corporate bond spread to
    government bond yields, is very significant on weekly data. Asset swaps are a
    measure of risk aversion in the fixed income markets and we find that an average
    gold price increase of about 9% in response to a 100bps increase in US
    corporate asset swaps levels.
    BE:
    Central banks are no longer lending gold
    A side effect of the credit crisis is that central banks have recently stopped
    lending gold, a common practice in the market, as they fear some borrowers may
    not be able to repay back their loans. In turn, this situation has contributed to
    send long-dated gold prices up very rapidly. This is a very rare occurrence, but it
    reflects the current state of panic for many market participants. The end result
    has been a rapid increase in gold lease rates beyond what their arbitrage relation
    to LIBOR rates suggests (Chart 44).
    BE:
    Gold will rise until the cost of money stabilizes
    Despite the recent coordinate measures across the globe to cal the markets, the
    liquidity crises is nowhere near its end. Banks remain hungry for cash and US 3M
    Libor rates are now trading at 4.75% while EUR 3M Libor is at 5.38% and GBP
    Libor is at 6.28%. Volatility is trading at extremely high levels across asset
    classes. In particular, gold volatility is at unprecedented high levels having traded
    above 40 vol points on several occasions in the past few weeks (Chart 45). This
    all suggests that flight-to-safety will still be the main driver of gold prices for some
    months to come and gold could revert back to $1000/oz in the process.

    The second stage is primarily about USD weakness…
    In our view, gold will develop a stronger trading link to the currency world as risk
    premia on money stabilize. Then, as the United States has taken on too much
    debt relative to its output, the USD will likely weaken to reflect the excess level of
    consumption relative to domestic output. In particular, if the US fails to keep
    foreign capital interested in financing its twin deficits, the USD could spiral down,
    providing strong support to commodity prices. The weaker dollar could then help
    gold break through $1200/oz (Chart 46).
    BE:
    …but gold could well strengthen against all crosses
    However, gold could strengthen against all currency crosses once the immediate
    liquidity crisis subsides. Simply, the United States has taken on too much debt.
    The USD could thus loose its reserve currency status, forcing gold to rally along.
    A weaker USD should help support gold prices as the two markets have been
    closely linked in the past year (Chart 47). The second stage is primarily about
    USD weakness but gold could well strengthen against all crosses in the short run.

    The USD could loose its reserve currency status
    As the United States has taken on too much debt relative to its economic output,
    it is also conceivable that the USD could loose its reserve currency status. In fact,
    the recent strength of the USD has been largely based on the fact that safe haven
    assets such US Treasuries are denominated in USD. While the recent measures
    are largely meant to offset the private sector credit contraction, we expect them to
    have severe fiscal consequences in the long run. Our US Economics team is
    currently estimating a $500 billion deficit for fiscal year 2009, reaching 6.2% of the
    GDP and surpassing the 1983 peak of 6.0%. On top of a large fiscal deficit, the
    US also runs a large trade deficit, and foreign capital inflows into the US are likely
    to play an important role in the aftermath of the crisis.
    BE:
    Negative real interest rate environments help gold thrive
    The unintended consequence of the ongoing financial bailout will be a return of
    inflationary pressures to the commodity markets. Ultimately, as lending returns to
    normal and money supply goes back to previous levels, we should see a
    renovated demand for real assets such as gold (Chart 48). And of course, if more
    dollars continue to chase the same barrels and growth picks up, oil prices could
    resume their upward spiral bringing gold up with it (Chart 49).
    BE:
    The third stage is a recovery in energy prices
    The current global bank bailout is inflationary, and will likely result in more money
    chasing the same barrels. In turn, the combination of higher cost of money and
    higher input cost inflation could force oil back up to $150/bbl. As we expect gold
    to maintain its long-run relationship with other commodities, gold prices could well
    push higher to $1500/oz.

    We believe the current global bank bailout is inflationary
    In the medium term, if the energy and credit crises are indeed linked to the same
    market failure, a massive government-led bank bailout may not help reignite the
    global economy and could bring about a second round of commodity price
    inflation. Whenever economic activity starts to recover, energy demand will likely
    start to strengthen and put upward pressure again on prices, as the ongoing bank
    bailouts will be inflationary in the long-term

    More money chasing the same barrels will push oil higher
    Four of the five largest holders of oil and gas reserves in the world have closed
    their doors to investment since 2000, severely curbing global energy supply
    growth prospects over the next ten years. Thus, whenever global economic
    activity starts to recover, a lot more dollars chasing again the same barrels likely
    will lead to higher oil prices. More importantly, with the ongoing upward shift in the
    cost of money, oil investors could well require a much higher IRR than 10%.
    Thus, a combination of higher inflation and higher cost of money could push oil
    prices structurally above $150/bbl as economic activity recovers.
    BE:
    Gold should maintain its long-run link to other commodities
    The lack of investment in supply infrastructure has been the major force behind
    the current commodity super-cycle. As EM economies go back to their long-term
    growth trends, they will do so in an environment with severe supply bottlenecks.
    Gold prices have not increased by nearly as much as the nominal expansion of
    EM economies such as Russia and India suggests (Chart 50). In fact, even
    considering the recent sell-off in commodities, gold prices are still cheap relative
    to oil prices. As we expect gold to maintain its long-run relationship with other
    commodities, gold prices could appreciate strongly in order to keep their historical
    relationship to other commodity prices (Chart 51).
    BE:
    And, as if that were not enough, here are the escape shutes:
    BE:
    What could go wrong with our bullish gold view?
    Contrary to developments in banking crises in other countries, the dollar has
    appreciated in the recent period even as the crisis continued to unfold in the
    United States. In part, this situation reflects a shortage of USD as market
    participants reduce risk and push money into the safety of US Treasury securities
    and FDIC-backed certificates of deposit. Should the financial stress turn out to be
    more severe in other countries as a result of this “flight to quality”, the dollar could
    fail to depreciate in the medium term and in turn limit the upside on gold.
    Similarly, should a deflationary spiral take over the global economy, a second
    wave of commodity price inflation may simply not happen, again limiting the
    upside on gold.

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  • mountain goat says:

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  • planning4acrash says:

    Luckjim, inflation is, always and everywhere increase in the money supply. Wages haven’t climbed, because all money has flocked into derivatives, then commodities, post bailout. Globalisation explains the lack of wage responsiveness. Companies simply can’t raise wages and remain competitive, because they are forced to compete on an “open playing field” with Communist China! Its a joke!! Since when did free market economics involve a total lack of protection from unfettered Communist monopolies! Its a freaking joke! This book, from Henry Hazlitt (in audio form) explains it in full. https://mises.org/story/2914

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