Comments on: UK Inflation - short term up, medium term down

By: Mike10613

Mike10613 — Wed, 14 Nov 2007 11:19:54 +0000

I have just paid for the tax disk on my car.

By: Steven_L

Steven_L — Wed, 14 Nov 2007 00:44:18 +0000

“… sterling won’t act as a magnet for short-term cash forever, just as the slide of the dollar will be reversed before too long. So everyone should be ready for the great currency gear-shift when it comes.” (Tony Makara)

I was prophecising about the collapse of the pound against he dollar/euro too a while back, and the associated inflationary pressures, but now I’m not so sure.

I’m now minded that the Arab states talk of shifting their dollar pegs to the IMF mixed basket and China beginning to allow the strengthening of the Yuan, and their proposed diversification fo foriegn currency reserves will steer us clear of an all out crash.

By: Steven_L

Steven_L — Wed, 14 Nov 2007 00:25:47 +0000

“If the government wanted to help they should cut the tax rate on petrol now, to control the short term increase in the CPI. Then the Bank could cut interest rates, lwoering RPI inlfaiton in the process and starting to relax the squeeze.” (JR)

I’d just like to say “I told you so”.

I seem to remember commenting on the arrival of $95 oil and the need for cuts in Uk fuel duty on 1th August this year.

‘So going back to this theme of listening to what clever people are saying in the financial press, there is a guy who works in commodities called Jeffrey Currie said that $95 crude was quite likely this year unless OPEC unexpectedly increased production and that declining inventories were raising the chances for $100 oil.

By: Derek

Derek — Tue, 13 Nov 2007 20:43:42 +0000

Unfortunately, I can’t see anything on the horizon, in the medium term to ameliorate inflating retail prices in shops. I think the storms will have to be very deftly navigated to avoid stagflation. I still think the authorities will struggle to keep a lid on shop prices without unleashing property price appreciation or vice versa. Meanwhile there’s still been no discernibly viable solution to the credit crunch and undiscovered poor quality debt. The general ethos still appears to be, there’s some bad apples in the barrel we’ll just throw some more in and hope it sorts itself out. Surely if a serious, and likely very painful, effort was made to unravel the true exposure to bad debt, the authorities would be far better placed to take the right action to keep the economy healthy. At present everything seems little more than a rolling reactive response to events rather than a pro-active grasping of the reins.

Reply: Bad debts are created by credit squeezes. Higher interest rates make more defaults on loans likely, and less credit means fewer jobs and lower incomes. The problem in the UK now is not the likelihood of a property price escalation, but the extent and speed of the fall in property prices, exposing more loans based on property values.

By: Tony Makara

Tony Makara — Tue, 13 Nov 2007 15:20:37 +0000

It will be interesting to see just how independent the BOE is if we reach a situation in which the pound starts to plummet against major currencies and if the BOE deem it unnecessary to raise interest rates to support the currency. In such a scenario Gordon Brown would certainly enact the emergency powers he outlined to the BOE in his open letter of May 1997. Gordon Brown needs to see that the pound remains overvalued because his whole anti-inflationary strategy depends on it.

By: Cliff

Cliff — Tue, 13 Nov 2007 12:20:58 +0000

It seems to me and I am not an economist, that the government’s mantra of keeping settlements for wage increases low in order to keep inflation down is only one side of the equation. On the other side, I would suggest that the government needs to keep the increase in “tax grab” low.
I have noticed that recently food prices have jumped up fairly sharply, especially bread, milk and butter for example. I am advised that this is due mainly to the increase in fuel prices. It seems to me that some of this increase is down to tax increases on the fuel price. These increases are passed on to the consumer and thus inflation soars, the “independent” BoE will then use the only tool it has to keep inflation low namely by keeping interest rates artificially high.
I have recently looked in to the question of the independence of the BoE as I could not see how a bank could be independent if it is told that it must keep inflation at a certain level and if it goes above that level, it MUST raise interest rates to counter act this rise. On other blogs I am advised that “every other country that has an independent bank has our model” so that’s all right then,(sarcasm intended) I just can’t see why it is called independent that’s all.
I also question the bank’s true independence by the way the officials of that bank are appointed, namely by government, again hardly independent in my view. Is it not just a case that a chancellor can say,”It isn’t me ripping you off through interest rates, it’s the independent bank.”?

Reply: The Bank is not independent, as explained on this site as the Northern Rock crisis unfolded.

By: Tony Makara

Tony Makara — Tue, 13 Nov 2007 10:26:00 +0000

The inflation debate hinges on the strength of sterling. So long as sterling is overvalued inflation will remain unseen. However this will do nothing for our ability to export and will stall growth. We have become very dependent on imports, much of which is foodstuffs, and this will manifest into inflation as and when the pound depreciates, sterling won’t act as a magnet for short-term cash forever, just as the slide of the dollar will be reversed before too long. So everyone should be ready for the great currency gear-shift when it comes.