Inflation

[superfrank]

Interest rates must be raised this year, OECD warns
http://www.guardian.co.uk/business/2011 ... -rise-oecd

Maybe a token 0.25% rise or 2 is possible; but the policy won't change.

Osborne should have sacked King and the disbanded the MPC the moment he took office.

Andrew Sentance is the only person on that committee with any credibility - and he is to be replaced by a Goldman Sachs banker. No prizes for guessing which way he'll be voting.

[Iron]

IMHO, the B of E were only given interest rate raising powers so that Gordon Brown could pass the buck when interest rates were raised. And as long as they continue to act as a whipping boy, I can't see Mr Osbourne changing the situation...

Jeff

Maybe a token 0.25% rise or 2 is possible; but the policy won't change.

Osborne should have sacked King and the disbanded the MPC the moment he took office.

[Photon]

Inflation itself is not that bad as most people seem to think. Just ask Japan. Its rampant inflation that the worry which isn't there yet. Second is the simplistic assumption that raising interest rate would cure inflation problem. The world, I'm affraid is not simple as that. There are many things that affect inflation but simply raising interest rate is reckless. It would only stifle growth and boy do we need growth. We taken things for granted for too long where each year things get cheaper but they can't. We will have to put up with inflation with low interest rate and relatively low growth rate. BoE is not that powerful as poeple wish it to be.

[superfrank]

Inflation itself is not that bad as most people seem to think. Just ask Japan. Its rampant inflation that the worry which isn't there yet. Second is the simplistic assumption that raising interest rate would cure inflation problem. The world, I'm affraid is not simple as that. There are many things that affect inflation but simply raising interest rate is reckless. It would only stifle growth and boy do we need growth. We taken things for granted for too long where each year things get cheaper but they can't. We will have to put up with inflation with low interest rate and relatively low growth rate. BoE is not that powerful as poeple wish it to be.

Low interest rates are not doing much for growth - we export far less than we import. Raising rates would boost sterling, makes imports cheaper and encourage inward investment. Chasing growth with cheap money doesn't work - it just produces bubbles that cause even greater harm when they burst, and even greater harm if you try to re-inflate them.

Inflation is a tax on spending power.

As Sentance says in his parting shot, "UK services sector inflation has been running at around 4% for much of the past decade, and has not shifted downwards to offset rising goods prices".

http://www.bankofengland.co.uk/publicat ... ech500.pdf

Rather than dismissing the impact of global influences on domestic inflation, monetary authorities need to assess how far they pose a threat to price stability – either in the direction of persistent inflation or persistent deflation. In the UK, we took the view in late 2008 and 2009 that the threat of deflation was the biggest risk in the wake of the global financial crisis, and cut interest rates to historically low levels, supported by direct injections of money into the economy through the policy of Quantitative Easing.

But the world inflation climate has become much more inflationary now, both through the direct effect of rising energy and
commodity prices and through a turnaround in global demand. While the global demand environment remains buoyant, we should not regard energy and commodity price movements as one-off shocks, as the inflationary pressure from the world economy may well persist for quite a while. And persistent above-target inflation carries other risks for price stability in the UK – to the credibility of our policy framework and to expectations of future inflation.

Indeed, Chart 11 shows that UK services sector inflation has been running at around 4% for much of the past decade, and has not shifted downwards to offset rising goods prices. This raises the possibility that in the services sector, high inflation expectations have already become engrained. For these reasons, I have been arguing for the past year that the MPC should embark on a policy of gradual interest rate rises and that delaying this process exposes us to greater inflationary risks in the future – which
would not be good for economic growth in the medium term. Continuing to accommodate inflation makes it more likely that a future sharp policy correction will be needed, particularly if persistent high inflation becomes embedded in wage and price-setting. That not only poses a threat to the recovery further down the track, but it could erode the hard-earned credibility of the UK monetary policy framework – which would be very damaging for economic growth over the longer-term.

I hope that my colleagues on the MPC will not allow the UK economy to be blown too far off course by global inflationary winds before taking the necessary corrective monetary policy action, which is long overdue.

[Iron]

Scottish Power are increasing gas bills by a whopping 19%: http://www.telegraph.co.uk/earth/energy ... -19pc.html

And electricity bills are to rise by 10%.

Jeff

[Iron]

Interest rates have been kept on hold again at 0.5%.

I wonder what the excuse this time will be...

Jeff

[Lagos]

Subject: UK Economics Update - Low rates needed to get recovery back on track
Auto forwarded by a Rule

THESE ANALYISTS THINK THEY WILL STAY LOW FOR A WHILE YET

With the recovery still struggling to get back on track, an interest rate rise today was never likely. Indeed, markets now do not expect the first interest rate rise until well into next year. We stand by our long-held view that interest rates are unlikely to rise until 2013 at the earliest.

Regards,

[Iron]

Oil is down about 15% since the start of May. Has anyone noticed cheaper fuel at their local garage?

I haven't...

Jeff

[superfrank]

Electrolux, the world's second-biggest maker of home appliances, is to put up prices in Europe because of a rise in costs.

The firm said the costs of imported raw materials and transport had both risen sharply during the first few months of 2011.

Electrolux says it is aiming to increase prices by between 5% and 7% from 1 October this year.

The company had already announced price rises in North and South America.

Electrolux to raise prices as its costs rise
http://www.bbc.co.uk/news/business-13748083

I think where we are past the bottom in consumer goods deflation. Inflation in the developing countries has taken hold and wages will start to increase.

China inflation at 34-month high on rising food prices
http://www.bbc.co.uk/news/business-13758784

Impact on the UK? Stagflation.

[superfrank]

THESE ANALYISTS THINK THEY WILL STAY LOW FOR A WHILE YET

All low rates are doing is keeping asset prices static in nominal terms while ensuring continued inflation.

Real and disposable incomes continue to fall.

Not good news.

I wouldn't be surprised to see base rates being held below 1% for the next 10 years. Real interest rates are another matter.

BoE will announce more money printing before the year is out IMHO.

[superfrank]

Andrew Sentance is the only person on that committee with any credibility - and he is to be replaced by a Goldman Sachs banker. No prizes for guessing which way he'll be voting.

Surprise surprise!

New Bank of England member votes to keep rates on hold
http://www.bbc.co.uk/news/business-13871449

Sterling trade-weighted index drops to 8-mth low
http://uk.reuters.com/article/2011/06/2 ... TH20110622

Sterling fell to its lowest in eight months against a currency basket on Wednesday, as the UK currency fell broadly after Bank of England minutes showed policymakers were concerned about the growth outlook and some believed more monetary stimulus may be needed.

money printing = lower sterling = higher import prices = lower demand = money printing = lower sterling = higher import prices = lower demand = money printing = lower sterling = higher import prices = lower demand = money printing = lower sterling = higher import prices = lower demand = money printing = lower sterling = higher import prices = lower demand = money printing = lower sterling = higher import prices = lower demand = money printing = lower sterling = higher import prices = lower demand = money printing = lower sterling = higher import prices = lower demand = money printing = lower sterling = higher import prices = lower demand...

[Iron]

Oil has been falling nicely since the start of May. Has anyone noticed a difference at the pump?

Jeff

[superfrank]

BIS warns low rates may create 'financial distortions'
http://www.bbc.co.uk/news/business-13922857

"The prolonged period of very low interest rates entails the risk of creating serious financial distortions, misallocations of resources and delay in the necessary deleveraging in those advanced countries most affected by the crisis," the bank said in its annual report.

"All financial crises, especially those generated by a credit-fuelled property price boom, leave long-lasting wreckage," the bank said.

I'm sure it will be ignored by the FED, BoE, ECB etc., because it's not what they want to hear, but at least some people are talking sense.

[Iron]

UK CPI inflation in surprise fall to 4.2% in June - http://www.bbc.co.uk/news/business-14119532

I'm sure this will be music to Mr King's ears...

Jeff

[Iron]

Inflation spike looms closer but no interest rate rise, Bank of England minutes show: http://www.telegraph.co.uk/finance/econ ... -show.html

*puts head in hands*

Will inflation have to reach double digits before Mr King decides to do his job?!?

Jeff