Inflation

[Euler]

http://www.bbc.co.uk/news/business-13359045

[Iron]

Still no hints on an interest rate rise...

The B of E's job is to control inflation, so why on earth won't they press the button?!?

Jeff

http://www.bbc.co.uk/news/business-13359045

[mulberryhawk]

Would increasing interest rates actually have an effect on the overall inflation rate?

In a normal times when inflation rises, the bank would react by increasing interest rates thereby curbing demand. Decreased demand leads to lower prices and inflation is reduced in theory.

But in this particular instance, as it seems to me, Inflation is being fuelled by global demand not domestic demand.

Increased VAT and reduced public spending are already dampening demand and with Gdp growth rates being downgraded constantly will increasing the interest rate actually have an effect on the inflation rate?

[Iron]

It's impossible to know for sure, but possibly IMHO.

A rise in interest rates could cause the pound to rise in value against other currencies, resulting in cheaper imports.

Also, if the Bank of England were to offer a more attractive enough interest rate on bonds, speculators may switch some of their money from commodities to bonds, possibly easing inflation (particularly if other central banks follow suit).

Jeff

Would increasing interest rates actually have an effect on the overall inflation rate?

[CaerMyrddin]

But in this particular instance, as it seems to me, Inflation is being fuelled by global demand not domestic demand.

The effect on the inflation reduction would be diminished but it would exist, I think you are spot on. It's really interesting to see how the whole world is in competition of resources and 'resources' can be anything from raw materials to people.

This gold bubble has all the common signs that is coming to an end. Last weekend I was in Lisbon and I took a detour before coming home and visited a beatiful small town named Vila Viçosa. This town and all the surrounding villages have 8k inhabitants. There is no theater, cinema, there are three small supermarkets, but there are two stores that only buy gold! You couldn't buy bread on a sunday, but you could sell your gold?

IMHO you can argue this and that but I can't see any sense in this, I'm sorry. I can't guess when will it burst, but it's stinking!

[mulberryhawk]

One quick question, does anyone know why if inflation is due to global demand why are the inflation rates in the US and Euro area so much less that the headline rate in the UK.

Is it that we import more products directly affected by inflation? Cheers

[superfrank]

One quick question, does anyone know why if inflation is due to global demand why are the inflation rates in the US and Euro area so much less that the headline rate in the UK.

Is it that we import more products directly affected by inflation? Cheers

It's because the £ has effectively been devalued by the BoE which means that everything we import costs more - to import goods you have to buy the foreign currency with your own.

The £ has lost a quarter of its value against the $ and euro and much more against commodity currencies e.g. a few years ago the £ was worth 2.5 aussie dollars, now worth 1.5... http://www.google.com//finance?chdnp=1& ... AUD&ntsp=0

The BoE justifies its policy by saying that a weak £ boosts exports, which of course it does, but we import far more than we export and that situation is unlikely to change so it's self-defeating. The real reason of course it that it wants to protect nominal asset prices at all costs and inflate away our massive debts.

[Iron]

UK inflation rate rises to 4.5% in April - http://www.bbc.co.uk/news/business-13421614

Let me guess Mervyn King - this is another one-off event, meaning you won't have to raise interest rates?

Jeff

[superfrank]

So the BoE finally admit that they are not targetting 2% inflation... 'like we didn't know!
http://www.independent.co.uk/news/busin ... 86609.html

[Iron]

I think their official line is that inflation is still their main preoccupation. However, apparently they're concerned that raising interest rates might cause higher inflation in the longer term, even if it would do something to address the problem right now...

Jeff

So the BoE finally admit that they are not targetting 2% inflation... 'like we didn't know!
http://www.independent.co.uk/news/busin ... 86609.html

[Iron]

'The Bank of England is failing this country' -

http://www.telegraph.co.uk/finance/comm ... untry.html

[superfrank]

'The Bank of England is failing this country' -

http://www.telegraph.co.uk/finance/comm ... untry.html

Jeff Randall is a top man and is one of a very few in the mainstream media that gets it.

"Inflationists," warned Von Mises, "want depreciation, because they want to favour debtors at the expense of creditors

That's what BoE policy has been, is, and will continue to be. Their inflation forecasts were a sham - they knew they'd never come true.

My favourite Von Mises quote is this one...

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

- Ludwig Von Mises, 1949.

[superfrank]

UK public borrowing higher than expected in April
http://www.bbc.co.uk/news/business-13519792

Another £10,000,000,000 added to the national debt.

Real interest rates are rising - the BoE base rate is becoming irrelevant, for consumers at least, http://news.sky.com/skynews/Home/Busine ... On_Small_L.

Think about it for a second, if you had loads of cash, would you want to lend it out for a return less than the rate of inflation? No, of course you wouldn't. It's another reason why the BoE's policy is self-defeating... capital goes abroad in search of decent yields, and investment in the UK falls.

[Iron]

Quite. In the short term, Britain gets to inflate away some of its debt. But we're just kicking the can down the road - sooner or later, the bond holders will have their pound of flesh, and will insist on much higher interest rates to protect themselves against being shafted again...

Jeff

if you had loads of cash, would you want to lend it out for a return less than the rate of inflation? No, of course you wouldn't.

[superfrank]

The gold standard makes a comeback... viewtopic.php?f=35&t=3577&p=27814#p27814.

Coming to a country near you soon!