Inflation

[1nvest]

Bank of England to lift rates to 4% on Feb 2, finish at 4.25% in March: Reuters poll

https://uk.finance.yahoo.com/news/bank- ... 6yZnHUU9Ze

UK Government/Parliament has been pretty disastrous, reduced the UK to being a banana republic island. Took over 6 months for instance for the Tories to elect a new leader, only to sack them days later. Massive irresponsible spending of the public purse, such as Sunak's furlough costs that excluded 3 million (self employed) in effect making it a pointless/waste. Lost billions. Raising taxes and incentives towards lowering GDP (have GP's retire early, university graduates slowing/stopping working when above the minimum wage due to taxation in excess of 40% (20% tax, 12% NI, 9% graduate tax) ...etc). Large scale flight of capital (taxation inducing the flight of the 1% who pay a third of total income tax take, leaving those left having to pay 50% more in taxes to fill that hole). To avoid yet further declines, the BoE has to make interest rates attractive, high yields in banana republics is the more common way to at least have some inflow of capital.

When Labour getting in to better manage the economy being the UK's best hope, interest rates remaining above average/high is perhaps the more likely mid/longer term trend. Where house and stock prices will also be pushed downward under such circumstances. Let alone what mess Labour might induce on top.

[gnawsome]

[
When Labour getting in to better manage the economy being the UK's best hope, interest rates remaining above average/high is perhaps the more likely mid/longer term trend. Where house and stock prices will also be pushed downward under such circumstances. Let alone what mess Labour might induce on top.

I'll confess to being short on financial intelligence but a bit long on being subject to interest rates so I am wondering if the formation of a Labour government will be somewhat different from previous Labour administrations.Over several decades I recall (maybe innaccurately) that Labour have inherited reasonable economic strength but with social disharmony and have sought to bolster support by employing that financial strength by using it.
Maybe this time they will be the recipients of the note " there is no money..."
Also maybe this was by design and they will have to become either seriously more radical or adopt a more emollient attitude towards savers and investors.
How can observers read the runes so as to be least badly affected...

[MacroTrad]

The data for Germany inflation was not available today, as the country's statistical office had to delay the release of its own figures due to technical issues with data processing.


Move along, nothing to see here. Germany will definately not have a recession this year. I know this because their government said so and so did the IMF so it must be true.

I very much hope they solve this before the ECB interest rate announcement tomorrow....

[MacroTrad]

[
When Labour getting in to better manage the economy being the UK's best hope, interest rates remaining above average/high is perhaps the more likely mid/longer term trend. Where house and stock prices will also be pushed downward under such circumstances. Let alone what mess Labour might induce on top.

I'll confess to being short on financial intelligence but a bit long on being subject to interest rates so I am wondering if the formation of a Labour government will be somewhat different from previous Labour administrations.Over several decades I recall (maybe innaccurately) that Labour have inherited reasonable economic strength but with social disharmony and have sought to bolster support by employing that financial strength by using it.
Maybe this time they will be the recipients of the note " there is no money..."
Also maybe this was by design and they will have to become either seriously more radical or adopt a more emollient attitude towards savers and investors.
How can observers read the runes so as to be least badly affected...

"It's different this time, honest, we can trust them...."

[Alaric]

Over several decades I recall (maybe innaccurately) that Labour have inherited reasonable economic strength but with social disharmony and have sought to bolster support by employing that financial strength by using it.

In my lifetime there have been Labour governments elected for their first terms in 1964, 1974 and 1997.

I don't think they inherited much economic strength in 1974, being an election during the miner's strike and the three day week. Also later that year, there was the highest inflation ever recorded, a stock market collapse and probably exchange rate and balance of payment crises.

[funduffer]

Over several decades I recall (maybe innaccurately) that Labour have inherited reasonable economic strength but with social disharmony and have sought to bolster support by employing that financial strength by using it.

In my lifetime there have been Labour governments elected for their first terms in 1964, 1974 and 1997.

I don't think they inherited much economic strength in 1974, being an election during the miner's strike and the three day week. Also later that year, there was the highest inflation ever recorded, a stock market collapse and probably exchange rate and balance of payment crises.

Following the 1997 Labour victory, we had a decade of good growth, low inflation, small government deficits (even a surplus as well). I am not sure why no-one can remember this period - it was the most optimistic period of my lifetime as regards the UK economy.

Unfortunately, it was all brought to and end in 2008 when the UK, along with the rest of the western world, suffered the great financial crisis, fundamentally driven by reckless mortgage lending in the US. Luckily we had a real politician then, Gordon Brown, who worked both nationally and internationally to mitigate the worst effects of this crisis.

FD

[ursaminortaur]

[
When Labour getting in to better manage the economy being the UK's best hope, interest rates remaining above average/high is perhaps the more likely mid/longer term trend. Where house and stock prices will also be pushed downward under such circumstances. Let alone what mess Labour might induce on top.

I'll confess to being short on financial intelligence but a bit long on being subject to interest rates so I am wondering if the formation of a Labour government will be somewhat different from previous Labour administrations.Over several decades I recall (maybe innaccurately) that Labour have inherited reasonable economic strength but with social disharmony and have sought to bolster support by employing that financial strength by using it.
Maybe this time they will be the recipients of the note " there is no money..."
Also maybe this was by design and they will have to become either seriously more radical or adopt a more emollient attitude towards savers and investors.
How can observers read the runes so as to be least badly affected...

Although Blair inherited reasonable economic strength in 1997 when he beat Major*, the previous Labour Government which came to power in 1974 under Harold Wilson inherited the bust from the dash for growth of the Barber Boom, the 3 day week and other industrial disruption, and the OPEC oil crisis which had started in October 1973.

* Major himself, despite the "bastards", had done well to repair the self inflicted damage caused by the bust following the "Lawson boom" after surprisingly winning the 1992 General election.

[Tedx]

BOE decision day tomorrow.

So how much willl the BOE raise rates by to make more gas?

Champagne corks are popping.....

[Alaric]

Following the 1997 Labour victory, we had a decade of good growth, low inflation, small government deficits (even a surplus as well).

Low inflation of retail prices, but a complete failure to stabilise property prices. What you might do to retain a stable relationship between earnings and the price of land and property I'm not sure, but there wasn't any noticeable attempt to manage these.

[1nvest]

Recession is a lagged indicator, FT250 is a real time indicator, which is up +2.4% as I write. Looks like the recession may be shorter than some perhaps believe.

[1nvest]

Following the 1997 Labour victory, we had a decade of good growth, low inflation, small government deficits (even a surplus as well).

Low inflation of retail prices, but a complete failure to stabilise property prices. What you might do to retain a stable relationship between earnings and the price of land and property I'm not sure, but there wasn't any noticeable attempt to manage these.

Cheaper houses = more Tory voters who might otherwise been on rent aid and more inclined to vote Labour. Whilst demographics (ageing baby boomers) is inclined to see reduced aged Tory voters.

[MacroTrad]

Inflation figures are still coming in high in Europe. Equities are still racing higher.

The reason given is 'investors are optimistic that disinflation will dampen the ECB (and others) drive to raise rates'.

However, I think for example today's print from Germany of 8.7% YoY suggests fear of inflation in assets leaving market participants behind is actually pushing up prices rather than optimism for the future, speculation or greed.

Inflation is a net positive for equities?

[Tedx]

Inflation figures are still coming in high in Europe. Equities are still racing higher.

The reason given is 'investors are optimistic that disinflation will dampen the ECB (and others) drive to raise rates'.

However, I think for example today's print from Germany of 8.7% YoY suggests fear of inflation in assets leaving market participants behind is actually pushing up prices rather than optimism for the future, speculation or greed.

Inflation is a net positive for equities?

March onwards was when the real gas price increases took hold. Since the peak in the middle of last year, they have plummeted.

https://tradingeconomics.com/commodity/natural-gas

So I would think that the inflation figures would start to show falls from March onwards.

[mike]

April is when benefits, pensions and minimum wage go up by 10.1%.
I think, after a quick Google.
I suspect that will be the reference and will have a prolonging effect.
If I don't maintain the delta with any of the above, I won't be very happy.

W.

I wouldn't be surprised if the March 2023 Budget saw a change from using CPI from 6 months earlier (end of September 10.1% rate) as the base for pensions/benefit increases, to one "more aligned with the current rate" ... perhaps 6.75% (March 2022 CPI index 117.1, Dec 2022 CPI 127.2 index - having dropped to 125 at the end of March 2023).

If NHS, out of work, housing, tax credits, disability benefits/spending are also restricted to the same figure or less than that 6.75% that would further slow/calm inflation and save north of £10Bn. In effect average/smooth benefits increases out to over multi-years rather than large increases one year, low increases the next due to volatility spikes.

Following the September 2021 CPI figure of 3.1%, pensions were increased by this amount in April 2022. But the CPI for April 2022 was 9%. [No triple lock that year due to wages anomoly]

When we have wildly swinging inflation rates, the 6-month time lag for deciding pensions and benefits is going to seem well out of kilter in either direction. It will of course all wash out correctly in the long term. But long term with regards to a pensioner will depend on their individual circumstances.

[stevensfo]

Following the 1997 Labour victory, we had a decade of good growth, low inflation, small government deficits (even a surplus as well).

Low inflation of retail prices, but a complete failure to stabilise property prices. What you might do to retain a stable relationship between earnings and the price of land and property I'm not sure, but there wasn't any noticeable attempt to manage these.

Maybe by the banks applying the original rules of how much a person/couple can borrow based on their income.

We bought a house in the UK in 1997 and the bank was very strict about what we could afford.

Then followed those famous years of 110% mortgages etc. The crazy increase in house prices that went on and on. Then the crash. Then the house prices going up again, always above the rate of inflation.

I would love to see 20 years into the future when all us baby boomers have died off and there is a glut of houses on the market, and the town high streets are so empty that all the charity shops become PLCs and any senior citizen who can't use their smartphone to access their bank has their money confiscated and fed into the new UK digital money system with an AI system telling us poor sods what we are allowed to spend.


Steve

[MacroTrad]

Inflation figures are still coming in high in Europe. Equities are still racing higher.

The reason given is 'investors are optimistic that disinflation will dampen the ECB (and others) drive to raise rates'.

However, I think for example today's print from Germany of 8.7% YoY suggests fear of inflation in assets leaving market participants behind is actually pushing up prices rather than optimism for the future, speculation or greed.

Inflation is a net positive for equities?

March onwards was when the real gas price increases took hold. Since the peak in the middle of last year, they have plummeted.

https://tradingeconomics.com/commodity/natural-gas

So I would think that the inflation figures would start to show falls from March onwards.

So you think it will be back at 2% soon?

[1nvest]

Inflation figures are still coming in high in Europe. Equities are still racing higher.

The reason given is 'investors are optimistic that disinflation will dampen the ECB (and others) drive to raise rates'.

However, I think for example today's print from Germany of 8.7% YoY suggests fear of inflation in assets leaving market participants behind is actually pushing up prices rather than optimism for the future, speculation or greed.

Inflation is a net positive for equities?

March onwards was when the real gas price increases took hold. Since the peak in the middle of last year, they have plummeted.

https://tradingeconomics.com/commodity/natural-gas

So I would think that the inflation figures would start to show falls from March onwards.

So you think it will be back at 2% soon?

CPI seems to be slowing to 0.3% month, so if that persists then by end of 2023 inflation could be down to below 4%, likely will take longer to get back down to 2% levels.

[ursaminortaur]

Following the 1997 Labour victory, we had a decade of good growth, low inflation, small government deficits (even a surplus as well).

Low inflation of retail prices, but a complete failure to stabilise property prices. What you might do to retain a stable relationship between earnings and the price of land and property I'm not sure, but there wasn't any noticeable attempt to manage these.

Maybe by the banks applying the original rules of how much a person/couple can borrow based on their income.

We bought a house in the UK in 1997 and the bank was very strict about what we could afford.

Then followed those famous years of 110% mortgages etc. The crazy increase in house prices that went on and on. Then the crash. Then the house prices going up again, always above the rate of inflation.

Abbey National had brought back the 100% mortgage in 1995 but it was just resurrecting something which had been available during the 1970s and 1980s.

https://www.independent.co.uk/news/business/fashion-flashback-a-100-mortgage-1614907.html

Saturday 08 April 1995 23:02

FLARED trousers, platform shoes and the tank-top have all had their comebacks in recent years. Last week it was the turn of another throwback to the 1970s and 1980s - the 100 per cent mortgage.

In a bid to breathe new life into a comatose mortgage market, Abbey National announced that it was bringing back the 100 per cent home loan for the first time since 1989.

[CliffEdge]

Anecdotally I see fuel and food prices actually coming down now. Fuel has been coming down since last summer, but I am now seeing many food items starting to drop in price, or rather there are many more offers in the stores.

Absent a further commodities spike I think CPI could fall faster than most people think.

Lidl grated cheese
A year ago £1.89, two weeks ago 2.50
Last week £2.60
This week £2.70

[1nvest]

Anecdotally I see fuel and food prices actually coming down now. Fuel has been coming down since last summer, but I am now seeing many food items starting to drop in price, or rather there are many more offers in the stores.

Absent a further commodities spike I think CPI could fall faster than most people think.

Lidl grated cheese
A year ago £1.89, two weeks ago 2.50
Last week £2.60
This week £2.70

The German-owned discount grocer, said its British sales rose 1.5% to £7.8bn in the year to the end of February but pretax profits soared 319% to £41.1m