Inflation

[superfrank]

Euler says that Buffet taught him not to worry about the future because you can't predict what's gonna happen.

But on the BoE I'm happy to make a prediction...
CPI will be above target for the next 5 years and base rates won't go above 1% in that time.

Things will only change if the bond markets call their bluff.

[Iron]

I'm not so sure...

There may come a point when bond buyers say to King: 'Inflation means that a £1000 bond will be worth £950 or less in a year's time. So why on earth should I buy your bonds, when you're offering nearly 0% interest!?! Come on mate, be serious, you're having a larf!'.

That may force King to raise interest rates. Ditto if the US raises its interest rates, although that doesn't seem likely, as Bernanke seems to see printing money as a cure for every economic woe known to man!

Jeff

[superfrank]

Gilts typically have a long maturity compared the debt of other governments.

According to wiki 25% of gilts are index-linked.
http://en.wikipedia.org/wiki/Gilt-edged_securities

[Iron]

True, although surely such gilts mean that, if inflation is rising, then so do the B and E's own borrowing costs. And if the B of E faces a higher cost of borrowing, the only way it will avoid taking a hit is if it raises the interest rate it charges banks.

Jeff

According to wiki 25% of gilts are index-linked.
http://en.wikipedia.org/wiki/Gilt-edged_securities

[superfrank]

but then the BoE just buys the debt itself (i.e. prints money and debases the currency).

low interest rates are just another bailout (of banks to sort out their balance sheets, and of debtors to support asset prices).

[Iron]

They could, although they might be opening the gates of Hell if they printed money just to avoid having to raise interest rates! That's not to say they wouldn't though!

Jeff

but then the BoE just buys the debt itself (i.e. prints money and debases the currency).

[Iron]

From http://www.bbc.co.uk/news/magazine-14217443:

'Let's say there's 5.5% inflation - not far off the retail price index today - and 2.5% GDP growth, which is about what we hope for. Together that's an 8% change in the amount of money in the economy each year. So divide 72 by eight. The answer is nine. Nine years at those rates of growth and inflation would halve the value of the national debt as a share of national income. Bingo?'

Perhaps that's where Mervyn King is really coming from - maybe he realises our best chance of significantly reducing the national debt isn't through growth, but through inflation...

Jeff

[superfrank]

Bank of England causes inflation, claims former MPC rate-setter Andrew Sentance
http://www.telegraph.co.uk/finance/econ ... tance.html

breaking news: trashing the currency causes inflation!!

"The MPC has no track record of taking tough monetary policy decisions to underpin its credibility," he said, adding that despite its recent forecasting errors "the MPC has redefined it target – putting much more emphasis on its own forecasts... The internal consensus around the Governor has been a very important driving force."

so we're at the mercy of Benny Hill and his abysmal forecasts.

[superfrank]

after yesterday's 'shock' rise in inflation, today's news from the MPC is that inflation "might stay above 3% this year" (which means that it almost certainly will, and that is just the way the BoE really wants it).

Bank of England official warns on UK inflation rate
http://www.bbc.co.uk/news/business-17753235

i wish we could bet on future inflation/growth etc.

[Euler]

Interesting angle on inflation: -

http://www.advisorperspectives.com/news ... conomy.php

[superfrank]

Bank 'might need to miss target'
http://money.uk.msn.com/bank-might-need ... s-target-1

Big hint that the BoE will ignore inflation and carry on printing regardless. that's what they've been doing for years anyway, but interesting that they are preparing the ground for more inflation and yet more depreciation.

prepare for long-term inflation and a run on the pound.

[superfrank]

British Gas to raise its gas and electricity prices
http://www.bbc.co.uk/news/business-19912951

this is the wholesale gas price (futures)...
http://finviz.com/futures_charts.ashx?t=NG&p=w1

prices have been weak in the last few years because of the abundance of new shale gas resources which is very cheap to extract.

while the BoE will welcome inflation (in its bid to erode debt) the problem is that, the more people have to spend on necessities, the less the have to spend on other things thus reducing real disposable incomes further.

[mulberryhawk]

erily quiet on here of late, all the hyperinflationists must be off stocking up on gold guns and ammo

[Iron]

Nothing much to talk about - Uncle Ben is keeping the lions happy by feeding them printed money...

For some reason, you remind me of those wise folk who once regarded the Titanic as an unsinkable ship!

Jeff

erily quiet on here of late, all the hyperinflationists must be off stocking up on gold guns and ammo

[mulberryhawk]

I would have thought the UK inflation rate of 2.2% in line with (actually ) the goveners expectations would have been a big talking point on this thread given some of the "irrational" points of view expressed in the last yr or so