Is it my imagination or have people forgotten about inflation. I think rapid and rising inflation is a real risk given the stimulus applied to the world economy and the strength of the asian economies.
UK Inflation up to 3.7%
http://www.bbc.co.uk/news/business-12214546
This rise is BEFORE the rise in VAT which will add to the figure. You could short bonds I guess as a hedge?
Inflation
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oddstrader
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there is just no hiding place for interest rates!
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andyfuller
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Surely the government are keen for inflation really as it devalues all the debt both personal and national?
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oddstrader
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- Location: Surrey
disposable income becomes very tight, i filled my car with petrol this morning for £98 , its crazy makes you think twice about going for a sunday spin with the kids
Since the financial crisis and severe slump in 2008/09, the biggest worry was deflation which was seen as worst than inflation. Hence printing money (QEs) by various government to kick start the economy and keep deflation at bay.
Temporary uplift in inflation is an expected side effects Quatitaive Easing. Add to this rise in commodities price across the board has been putting upward pressure on most things.
Rise in VAT rate to 20% is also adding to this as this time its permanent so most companies have decided to pass on this rate.
But Bank of England is not worried too much about inflation mainly because of spare capacity created in the year or so is expected to put downward pressure on inflation in 2011. Plus the impact of VAT increase to inflation will not be there from 2012.
So expect CPI to go remain slightly above above 3% target in early 2011 but should go down. Unemployment remains high so there's no upward pressure coming from higher wage increase.
Unless growth in GDP overshoots expectations by a biggish margin then consumer prices should come down (in theory).
Now I'm about to get side tracked but if GDP increase is higher than expectation of 2.1% then there's dilema as it will be bad news for people with jobs & big mortages as higher growth will increase inflation and in turn interest rate so servicing debt will become an issue.
However, people without jobs or looking for higher wage will benefit as more jobs will be created. I find this worth thinking about as previos economic growths meant good news for the majority of the population.
In terms of bond, yield on US treasury bill has been rising modestly but steadily hinting at potential pick up in the economy as investors expecting to get higher returns from stock market however stock market in the UK and US does look overpriced so need to tread carefully.
Temporary uplift in inflation is an expected side effects Quatitaive Easing. Add to this rise in commodities price across the board has been putting upward pressure on most things.
Rise in VAT rate to 20% is also adding to this as this time its permanent so most companies have decided to pass on this rate.
But Bank of England is not worried too much about inflation mainly because of spare capacity created in the year or so is expected to put downward pressure on inflation in 2011. Plus the impact of VAT increase to inflation will not be there from 2012.
So expect CPI to go remain slightly above above 3% target in early 2011 but should go down. Unemployment remains high so there's no upward pressure coming from higher wage increase.
Unless growth in GDP overshoots expectations by a biggish margin then consumer prices should come down (in theory).
Now I'm about to get side tracked but if GDP increase is higher than expectation of 2.1% then there's dilema as it will be bad news for people with jobs & big mortages as higher growth will increase inflation and in turn interest rate so servicing debt will become an issue.
However, people without jobs or looking for higher wage will benefit as more jobs will be created. I find this worth thinking about as previos economic growths meant good news for the majority of the population.
In terms of bond, yield on US treasury bill has been rising modestly but steadily hinting at potential pick up in the economy as investors expecting to get higher returns from stock market however stock market in the UK and US does look overpriced so need to tread carefully.
Hi Photon
One of the problems with QE is that it opens a Pandora's Box that can't easily be closed.
And as we all know, once trends form, they can self-perpetuate. So there's no knowing knowing how big the inflation-causing asset bubbles will balloon to.
I think that the B of E are worried about inflation (particularly as keeping inflation under control is one of their key responsibilities).
But if they raise interest rates, then the public will have less disposable income and the pound will rise on the foreign exchanges, meaning both domestic spending and exports are hit.
So they are between a rock and a hard place...
BTW, something else to consider is that, at the moment, suppliers may be absorbing much of the increased costs. But there may come a point when they say 'I might as well go out of business if I keep taking hits like this. I have to raise my prices.'
From the attached chart of the FTSE 100, someone who'd been living in a cave for the last 3 years could be forgiven for thinking that the UK economy has been booming since the beginning of 2009!
When you consider that it hasn't, a possible explanation is that low interest rates have resulted in people putting money in equities.
Jeff
Given a choice between hyper-inflation and deflation, I'm not sure which I'd dislike most!Photon wrote:Since the financial crisis and severe slump in 2008/09, the biggest worry was deflation which was seen as worst than inflation.
One of the problems with QE is that it opens a Pandora's Box that can't easily be closed.
And as we all know, once trends form, they can self-perpetuate. So there's no knowing knowing how big the inflation-causing asset bubbles will balloon to.
Photon wrote:But Bank of England is not worried too much about inflation mainly because of spare capacity created in the year or so is expected to put downward pressure on inflation in 2011.
I think that the B of E are worried about inflation (particularly as keeping inflation under control is one of their key responsibilities).
But if they raise interest rates, then the public will have less disposable income and the pound will rise on the foreign exchanges, meaning both domestic spending and exports are hit.
So they are between a rock and a hard place...
True. But the current inflation isn't primarily driven by domestic demand; it's caused by factors beyond our shores.Photon wrote:Unemployment remains high so there's no upward pressure coming from higher wage increase.
BTW, something else to consider is that, at the moment, suppliers may be absorbing much of the increased costs. But there may come a point when they say 'I might as well go out of business if I keep taking hits like this. I have to raise my prices.'
That assumes GDP outstrips inflation. If it doesn't, we're receding as an economy, not growing.Photon wrote:Now I'm about to get side tracked but if GDP increase is higher than expectation of 2.1% then there's dilema as it will be bad news for people with jobs & big mortages as higher growth will increase inflation and in turn interest rate so servicing debt will become an issue.
IMHO, the FTSE and the Dow are bubbles waiting to burst.Photon wrote:However stock market in the UK and US does look overpriced so need to tread carefully.
From the attached chart of the FTSE 100, someone who'd been living in a cave for the last 3 years could be forgiven for thinking that the UK economy has been booming since the beginning of 2009!
When you consider that it hasn't, a possible explanation is that low interest rates have resulted in people putting money in equities.
Jeff
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CaerMyrddin
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IMHO, national economies relate less and less with the stock markets these days, which makes sense if you think that companies don't operate only locally.
I own some shares of a portuguese company (a very small position) and when I'm looking into it's numbers, I'm more concerned with the polish economy and the zloty than with euro or the portuguese default crisis.
I'm not saying the stock markets aren't about to break, as I have no opinion on the subject, but you must detach economy and stock market.
I own some shares of a portuguese company (a very small position) and when I'm looking into it's numbers, I'm more concerned with the polish economy and the zloty than with euro or the portuguese default crisis.
I'm not saying the stock markets aren't about to break, as I have no opinion on the subject, but you must detach economy and stock market.
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CaerMyrddin
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- Joined: Mon Sep 07, 2009 10:47 am
I'd like to know your thoughts on how to avoid capital erosion by inflaction. The simplest idea would be to buy stocks of companies that produce trading goods and can incorporate inflaction on their products?This rise is BEFORE the rise in VAT which will add to the figure. You could short bonds I guess as a hedge?
Do you mean in terms of the fact that higher inflation may weaken demand for the pound, as it means that a pound bought today will be worth less in a year's time?
Jeff
Jeff
Euler wrote:Don't forget to think about exchange rates when you are assessing inflation.
In theory the impact of inflation is more profound on exchange rate than vice versa. Inflation is mainly occurs when demand is higher than supply. This situation can arise if either there's increase in supply of money which pushes up demand or draughts/flood/war etc. which diminishes supply.
For a more balanced economy where import and export even out, exchange rate does not pose too much of a problem. However, as the UK economy has quite a large current account deficit means that a weakened sterling (which has been severly weakend since the financial crisis) means that its that little more expensive to pay for imported stuff and as everyone knows we do import lot more stuff than we export. Fx rate has helped UK manufacturing a bit but since that's not (sadly) a major part of the economy, its actually hurting more than healing.
For a more balanced economy where import and export even out, exchange rate does not pose too much of a problem. However, as the UK economy has quite a large current account deficit means that a weakened sterling (which has been severly weakend since the financial crisis) means that its that little more expensive to pay for imported stuff and as everyone knows we do import lot more stuff than we export. Fx rate has helped UK manufacturing a bit but since that's not (sadly) a major part of the economy, its actually hurting more than healing.
http://www.bbc.co.uk/news/business-12343607His remarks will only add to the pressure on the ECB to consider increasing Europe's interest rates.
Food costs at record high as U.N. warns of volatile era:
http://www.reuters.com/article/2011/02/ ... 3720110203
Jeff
http://www.reuters.com/article/2011/02/ ... 3720110203
Jeff