Friday, April 13, 2012

Good news! The price of everything has gone up. We are all richer than before.

UK producer prices rise 0.6% in March

UK producer prices rose 0.6% in March from February, due in part to rises in the cost of petrol products, tobacco and alcohol, figures have shown. On an annual basis, prices rose by 3.6%, the lowest rate for more than two years, the Office for National Statistics (ONS) said. Annual producer price inflation has been slowing since September last year, when it rose by more than 6%. Input prices rose by 1.9% month-on-month, and 5.8% year-on-year. Separate figures showed output in the construction industry fell by 4.6% in February compared with a year earlier. In other news - wages are static and savings rates are abysmal.

Posted by khards @ 10:41 AM (1541 views)
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9 thoughts on “Good news! The price of everything has gone up. We are all richer than before.

  • general congreve says:

    Gold price – Up 63% since 2009
    A standard unit of gas from my supplier – up 60% since 2009
    A standard unit of electricity from my supplier – up 50% since 2009
    A litre of petrol – up 50% since 2009
    Favourite bottle of wine – up 27% since 2010
    Tin of supermarket own brand tomato soup – up 34% since 2010
    10 supermarket brand Spanish 330ml beers – up 37% since 2010
    32″ LCD TV from desperate high street stores trying to get any revenue they can through the door – Down 20% since 2010
    Home furnishings from desperate high street stores trying to get any revenue they can through the door – Down 20% since 2010

    Let’s just put that all through the Magic Merv(TM) calculator, tap, tap, tap…

    ABCRACADABRA!!!

    INFLATION = 5% per annum

    TA DA!!!

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  • Not being a particularly wealthy person, my main issue is:

    Pay rise 2007 ~5%
    Pay rise 2008 ~5%
    Pay rise 2009 ~0%
    Pay rise 2010 ~1%
    Pay rise 2011 ~2%
    Expected Pay rise 2012 ~2%

    You see the problem? In 10 years time this country will be earning on a level playing field with China and India.

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  • Bit selective GC..

    ..food commodity prices are almost all well down on a year ago, as are most non-precious metals; and silver is about 20% down, whilst oil is almost exactly the same.

    Your beloved gold is up on the year, but no higher than it was seven months ago.

    Sterling is slightly weaker than the greenback over the year, but only by about 1.5%

    Hate to say it, but this time our Merv’s inflation predictions may actually come right for a while..!

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  • general congreve says:

    @3 – Well I’m not seeing it in the shops or at the pump. As for your points:

    Non-precious metals benefited from a huge demand surge from China off loading dollar currency reserves for real assets, they are now naturally falling back, but they will not be lower than they were in 2009 in a few years, due to monetary inflation.

    Oil was in a bubble when the crisis broke. Falling demand, due to global recession forced the price back down, but monetary inflation since has brought the price back up.

    Nothing moves in a straight line. Gold is still beating the highest of my inflated goods, natural gas, by 3%, despite it’s recent correction. And why the recent correction? The central banks intervene in the Housing Market via ZIRP, the Bond Market via QE, the Stock Market via QE and other means, this is well known. It is also well known they intervened, as the London Gold Pool, in the 60’s to try to suppress the price of gold. They gave up in 1968 when they haemorrhaged too much gold in their efforts. This eventually lead to Nixon closing the gold window in 1971 and gold going on the rampage in the 1970’s, until Volcker raised interest rates to the level needed to make fiat a safe bet again. A rational mind would think it highly likely they are intervening in gold and silver now as well, via gold leasing and paper derivatives. All ok, until it isn’t. Meanwhile, thanks for all the cheap metal you central bank lovelies! 🙂

    As for silver, it is a small and therefore easily manipulated market and is naturally a very volatile market anyway, comparing it over the shorter term is not advisable for any measure of accuracy. Taking the longer term view, since 2009, it is up around 100%, so in fact out strips even gold by nearly 2 to 1.

    Keep wishing on that schadenfreude star UT 😉

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  • GC,

    There is not the slightest reason why any major economy would waste their money trying to suppress the gold price today.

    The gold price has come off the boil because the bull argument about it being a ‘safe haven’ is no longer believed, and the speculative argument that the price might super-spike as it did three decades ago is looking increasingly unlikely.

    This is the time for gold investors to bank their profits – you might regret not doing so..

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  • You see the problem? In 10 years time this country will be earning on a level playing field with China and India.

    That’s the whole idea.

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  • This is the time for gold investors to bank their profits – you might regret not doing so..

    Um, but not if you look at the economic fundamentals. You might also regret cashing out too early, a lot more.

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  • general congreve says:

    @5 – I believe you are simply looking at the metric of gold price versus value in sterling pounds and saying, it’s up 63% in three years, time to take a profit as what goes up, must come down.

    However, context for gold’s rise in value is needed. Firstly, it is not simply a commodity, but currency and should be viewed as such. When Zimbabwe debauched their currency and the pound rocketed against the Zimbabwe dollar, was anyone calling for those holding pounds to cash in their gains and plough back into the Zim Dollar in anticipation on the Zim dollars imminent bounce back? No, because every time Mugabe printed more Zim Dollars relative to UK Pounds, the Zim dollar was permanently devalued. Whilst any subsequent printing of UK pounds may have shifted the relative exchange rate back more in favour of the Zim Dollar (if the Zim presses had stopped at this point) it still wouldn’t have meant the Zim dollar was any less devalued versus real goods and services, only less devalued versus the pound.

    Bearing the above in mind, let’s look at the rise of gold versus the pound in context of real goods and services. Over the last three years a pound used to buy the following and now buys this:

    2009 2012
    1 Litre of Petrol 0.66 Litres of Petrol
    1 quantity of gas 0.625 gas
    0.257 bottle of wine 0.2 bottle of wine

    By cashing in my 63% ‘gain’ in gold now, how much better off, relative to these goods and services, would I be in pounds? I would be better off, but not a great deal, especially in the case of gas and petrol.

    What is happening here is firstly that a stable currency, gold, is merely adjusting to the devaluation of the pound. However, it is out ahead a little way over and above the devaluation of the pound. This is due to the secondary effect of people dumping the pound for gold, thereby pushing gold prices up (simple supply and demand), over & beyond relative pound devaluation to gold, because people would rather hold safe gold than unsafe pounds.

    Obviously gold protects against sterling devaluation, but as a result of increasing demand offers the opportunity for actual investment gains (just like trading in any currency does) as demand fuels the price of gold yet further. However, on balance, this additional fueling of the gold price is currently not particularly great relative to the pound when compared to real goods and services that an ounce buys. So it is not wildly overpriced compared to three years ago by any real world measure.

    What signal would I be looking for to get out of gold?

    Whilst a pound will never again buy a litre of fuel (unless taxes are slashed drastically or a massive new field is found under Scunthorpe etc.), theoretically it may at some point be advantageous to swap back out of gold and into sterling.

    However, for this to happen the pound has to stop devaluing, at least to around 1%-2% per annum, the same rate at which new gold is mined. Or, if the pound continues to be devalued by printing, then the real interest rate paid on savings must be suitably positive for it to be an attractive proposition to exchange gold for cash in order to earn a real rate of return via savings interest.

    Therefore, when QE ends or ZIRP ends (to the point interest rates are positive real term terms by at least around 2% – as history has shown is necessary), then I’d think about getting back into the pound. However, interest rates must be real in terms of actual inflation, not the bogus govt. measure!

    So, can QE and ZIRP end? Or perhaps a better question is, is the government prepared to let the housing market crash, let the banks fail, make truly crippling austerity cuts to pay back our debt (which would probably be just as counter-productive in clearing the debt as current policy, due to the falling tax take caused)?

    If you think the evidence points to the answer being YES, then load up on sterling and await the new dawn payday of generous interest rates (if the bank hasn’t collapsed with your money in it before that occurs that is). Otherwise I advise keeping a little gold.

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  • general congreve says:

    No one seems to disagree then? Very good, we’re making progress at last.

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