Monday, April 20, 2009

Inflation in goods which typically fall 10% a year

Electrical goods increase in price

Recent purchasers of MacMinis might be pleased to know that there was a 25% price increase. Whether or not this is a one-off effect due to sterling devaluation through artificially low interest rates, or the emergence of a general inflationary spiral remains to be seen. Rising unemployment and high inflation, the heady mix only possible under Labour governments. But against the losses of UK housing stock? The new gold will be white goods and cars older than 9 years.

Posted by stillthinking @ 02:47 PM (1463 views)
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12 thoughts on “Inflation in goods which typically fall 10% a year

  • mark wadsworth says:

    Sackerson has summed this all up in a short post, plus see his answer to my direct question in the comments.

    Not much more to add.

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  • general congreve says:

    Inflation via the backdoor of currency devaluation. We are a net importer, so expect more of this soon. Domestically produced goods will go up too. If domestic producers can get a higher return selling his products abroad thanks to a weak pound, they aren’t going to be inclined to sell here for less profit, so they will increase domestic prices accordingly. Get ready for stagflation people.

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  • “The great majority of consumer electronics is manufactured in the Far East and is priced in dollars. Over the last year the pound has fallen from $2 to $1.46, pushing up the cost of imports by more than 25 per cent. ”

    I run my own retail business and we import all of our products paying for them in USD.

    When the rate changes from $2 to $1.46, the local cost price goes up by 37% not 25% (2.00/1.46), and it is crippling us.

    37 bloody per cent!!

    And the government are still denying inflation.

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  • I’m not convinced that loss of purchasing power is the same as inflation but it’s similar and has the same effect in relation to imports. Our currency is weak but not because there is too much of it in circulation but because there is too much debt relative to our productiveness.

    A weaker currency means higher import costs but much of what is imported is or will become discretionary. The overall story is one of deflation with unemployment increasing and wages reducing and even the public sector becoming weighed down under a mountain of debt.

    Deflation acts like a python on the lungs of the economy and there is nothing the government can do, it can no more control it than achive a soft landing on housing. The UK is going to feel this more than most and we are already at the limits of QE.

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  • japanese uncle says:

    Marking up the price is one thing, whether people at risk of losing job can afford is entirely another. Anyway it will accelerate the process to the bottom of the depression.

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  • From today’s FT:-

    Inflation stalks BoE’s quantitative easing – PSigma
    Story by: Catherine Couch Magazine: FinancialAdviser Published Thursday , April 16, 2009
    The Bank of England’s quantitative easing has been labelled an extraordinary waste of money by Tom Becket, fund manager of PSigma’s £4.5m Balanced Managed fund of funds.

    Mr Becket said he had become increasingly concerned about the growing spectre of inflation in the next decade.

    He warned that the printing of money would lead to a “period of brief, unsustainable improvement in global economic output followed by a grim period of stagflation, low or negative growth accompanied by high inflation”.

    To protect the portfolio against the risk of inflation, Mr Becket said he had increased its position in the £139.7m Royal London Index-Linked Gilt fund to 8 per cent.

    Mr Becket said: “We believe that the poorly judged hyper-active policies of global central banks and governments, not least the stimulus deluge that has been suggested, are likely to create intense inflationary pressures.”

    He said he was also seeking out investment in countries that had strong balance sheets and whose equity markets were likely to recover the fastest.

    China was likely to emerge well from the downturn as they were using their capital sensibly by implementing necessary infrastructure projects and by spending on vital sectors such as healthcare, he said.

    However, he predicted the European recession to be “prolonged and painful”.

    Given this volatile outlook for many countries, Mr Becket said he had been actively trading in equities and would maintain his flexible equity investment strategy for the foreseeable future while volatility remained high.

    The fund’s UK equity rating increased in March using the iShares FTSE100 ETF and the R&M UK Equity Long-Term Recovery fund, to benefit from any market upside, which he said also eliminated any potential currency risk from international equities. Mr Becket then took profits when the FTSE100 reached the 4000 mark.

    Mr Becket said PSigma had also bought into the Legal & General Diversified Absolute Return Trust fund, a best ideas global markets fund that aims to generate positive returns from the current macro and market thinking of the Legal & General research team and the results of their research.

    Paul White, a consultant for London-based IFA Belgravia Insurance Consultants, said he did not share Mr Becket’s view of looming hyperinfaltion, as the recent G20 Summit showed the world’s leading economies could work together to combat it.

    He said: “I foresee that the US economy will expand again as a result of the Obama effect, drawing in imports from Europe and China, which will reinflate the economies there.

    “The monetary policy committee has indicated its willingness to resume using interest rates as a tool to manage inflation, so I do not envisage hyperinflation in the UK.

    “Should the Eurozone suffer from it, sterling would once more become a safe haven, or more likely the dollar, so hyperinfaltion would not get under way in that region either.”

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  • little professor says:

    Nintendo Wii has gone up in price by £20 – they blamed they huge devaluation of Sterling versus the Yen.

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  • stillthinking says:

    I think that deflation is pretty much on us, and after that there will be some extreme inflation just not yet. I agree with bellwether. To what extent is becoming poor considered inflationary? Foreign goods are going up because they don’t want UK production, looks -like- inflation. Internally we are all short of money, wages going down and anything purely internal going down (like rents). There is demand pull inflation on our exports, but what are they really? Looks like UK food production is pretty much the only thing that has maintained external demand.
    gulp! (sorry not gulp of course 🙂 )
    Our poverty will be revealed when the global economy picks up. We are sailing on a tide of over-production which looks like finishing. House prices are going to fall and fall in real terms, i.e. currencies other than sterling. Maybe the government can hold up nominal prices but to the rest of the world they are in freefall, down ~50% already and still going.
    jack c quotes about inflation being managed, but really I wonder, because our debts are sufficient to prevent interest rates rising ahead of the curve to slow them. As in, raising interest rates enough to control inflation would lead to mass default. I doubt very much that homeowners could cope with a 10% base rate.
    To what extent could we get post-deflationary inflation under control? I am not sure that the country would be able to cope with anything over 5% even, particularly as this would be inflation on solely imports while our wages languish in the gutter.
    I don’t see much that is good for sterling in the future, any tinkering by our beloved leaders will show up as a collapse in the exchange rate.

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  • The only way out of this mess is to try to pass all the loses on to our crediters by devaluing Sterling. Can’t see holders of Sterling around the world standing for that can you. At some point the BOE will be forced to raise rates to avoid a run on Sterling, Gordon McB*stard is hoping Sterling holds on until after the next election, after that he doesn’t give a screw we’ll be in the Euro.

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  • Enoughalready says:

    The little DVD/tv combo I bought from Tesco last month at a great price has just come down by £10!! How- what with the falling £ and everything? Does anyone else think there may be some sort of price fixing going on so that Joe Public doesn’t take to the streets?

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  • general congreve says:

    stillithinking @ 8 – Yep, that’s the reality, the UK is now in the poorhouse, everything is going to get a lot more expensive full stop relative to what you earn.

    Herein lies the answer to the inflation/deflation argument that keeps running. Yes, the money supply might be contracting, which is the argument for deflation rather than inflation, but our economic output is sliding at faster rate than contraction in money supply. Therefore our currency is devaluing and prices on imports and domestically produced goods (see my earlier post) will still go up relative to incomes. Not to mention the problem being compounded by the crippling debts we’re saddled with as individuals and a nation – Personal debt highest in the world per head in the UK, national debt highest since WW2.

    Welcome to the poorhouse UK!

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  • 10. Enoughalready said…”The little DVD/tv combo I bought from Tesco last month at a great price has just come down by £10!!”

    Yeah, I bought one of those too, for the spare bedroom. Couldn’t resist the sub-£200 price tag.

    Have you seen the hammer action electric drill for £7-50? ——– I mean, £7-50 – how’s that possible? You can see how the inflation/deflation waters get a severe muddying to keep the sheeple confused.

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