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Imminent inflation crisis, due to various factors including shortage of industrial CO2?

brad465

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There seems to be plenty of stories/activity that suggests a rough period of high inflation has arrived and is set to get worse before it gets better. Earlier this week the UK inflation rate jumped from 2% to 3.2%, the highest change since the Bank of England gained independence, with forecasts suggesting it will reach 4% at least before potentially dropping off.

There are global supply chain problems that are helping drive this, while for us specifically Brexit red tape is not helping matters, in particular exacerbating labour shortages in key sectors such as haulage and fruit/crop picking. Today there are reports some small energy firms will go bust soon due to surging gas prices, and related utility bills are and will be going up at rates higher than the official inflation rate (one reason there are people who believe the official rate is rigged downwards).

In terms of trying to control inflation, the Bank of England seem very reluctant to put interest rates up and withdraw QE to try and control inflation, claiming it's all "transitionary", although a more hawkish shift appears to be emerging for small increases to occur next year. I strongly believe their tone here is because the house of cards that's been created since 2008 will crash if interest rates rise, with public debt likely to be unserviceable and lots of defaults on private debt likely, plus housing and stock market crashes.

Here are some recent key reports related to this:


Price rises have seen the biggest jump since records began in 1997 as the economy continued to reopen.

Official figures show that the increase in the cost of living, as measured by the Consumer Prices Index, hit 3.2% in the year to August.

Higher prices in restaurants and for recreation and food were behind the spike, up from 2% the previous month.

The cost of living rose less rapidly in July because of lower clothing and footwear prices.

However, the Office for National Statistics (ONS) urged caution in reading too much into August's price increases, which it described as "temporary".

Eating and drinking out cost more last month in comparison with August last year, when the Eat Out to Help Out Scheme was running and diners got a state-backed 50% discount on meals up to £10 each on Mondays, Tuesdays and Wednesdays.

At the same time, business owners in the hospitality and tourism sectors received a VAT discount, designed to help some of the industries worst hit by the pandemic.

Continued


At least four of the smaller UK energy companies are expected to go bust next week amid soaring wholesale gas prices.

Industry sources have told the BBC that four firms have asked larger players to bid to take over the supply to one million customers.

The price rise has left some companies unable to provide their customers with the energy they have paid for.

Industry rules mean supplies will continue for affected customers, and they will not lose money owed to them.

The new company is also responsible for taking on any credit balances the customer may have.

But paying that credit out to customers is a further disincentive for companies to take on new business.

Continued


UK fruit and vegetable growers are cutting their planting for 2022 after unprecedented labour shortages led to widespread wastage of produce...


Public concerns about inflation rose sharply in August as satisfaction with the Bank of England’s control of prices sank to its lowest level in a decade.


I wasn't around in the 70s and 80s, but given the times we live in I wouldn't be surprised if a "Winter of Discontent 2" is on the way, if inflation and supply shortages continue to get worse this winter, especially where food and energy supplies are affected. We've also got a tax rise to look forward to next spring, which is already controversial, but if living standards have been squeezed further by high inflation outpacing earnings, this rise will go down very badly and may even lead to a repeat of the poll tax fallout if the right conditions exist. The cabinet reshuffle this week has been suggested as a distraction from a multitude of problems, and the fact it happened on the day the latest inflation figures came out suggests the Government know high inflation won't go down well with their popularity.
 
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yorksrob

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The devil is, as always in the detail.

I'd be more tolerant of inflation if I knew it was going towards increasing workers wages, rather than lining the pockets of a multinational, but as consumers, we never know!

Incidentally, the Bank of England actually has a target of inflation of around 2% annually, so any inflation figures we see, we should presumably subtract this ?
 

johncrossley

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I wasn't around in the 70s and 80s

So you won't know that 4% is nothing. We had higher inflation than that less than 10 years ago. Too much inflation is better than too little. If this leads to an increase in interest rates it would be very welcome by savers who have been punished for the last 13 years.
 

Mcr Warrior

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If this leads to an increase in interest rates it would be very welcome by savers who have been punished for the last 13 years.
Yes and no. An increase in UK interest rates from the current near zero rate is all very good but not if the effective return is still less than the prevailing rate of inflation. :s
 

yorksrob

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Interest rates are a tricky thing.

They tend to get exaggerated for borrowers and ignored for savers :lol:
 

Jozhua

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I think the difference this time is that the rates are connected very much to real conditions than market forces.

My dad lived through the winter of discontent and says (from his perspective) the shortages are worse now. The incredible gas price increases are going to be interesting.

Totally agree with brad465 that the post-2008 economy is a house of cards ready to fall. Few aspects of the UK economy actually recovered from 2008. I don't think there has really been any improvement in quality of life for people since then, things are more seemingly in decline.

It's really interesting to see what happens when we base our entire economy off the supply of cheap exploitable labour, then get mad that they are 'taking our jobs', kick them out, then wonder why we have no workers. I think things are only getting worse from here on out in terms of shortages, prices, cost of living, healthcare, etc. The government have completely lost the plot and there is no plan to get us out of the impending tailspin.
Interest rates are a tricky thing.

They tend to get exaggerated for borrowers and ignored for savers :lol:
Sounds about right!
 

birchesgreen

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I'd be more tolerant of inflation if I knew it was going towards increasing workers wages, rather than lining the pockets of a multinational, but as consumers, we never know!
but i think we can have a good guess at which is more likely :lol:
 

deltic

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The devil is, as always in the detail.

I'd be more tolerant of inflation if I knew it was going towards increasing workers wages, rather than lining the pockets of a multinational, but as consumers, we never know!

Incidentally, the Bank of England actually has a target of inflation of around 2% annually, so any inflation figures we see, we should presumably subtract this ?
Given labour shortages at present it would appear that real wages are rising at some pace in certain sectors of the economy.

Increased interest rates will hopefully hammer the housing market and see price falls but it will hit hard people who have borrowed to the limit.
 

Peter Sarf

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Interest rates are a tricky thing.

They tend to get exaggerated for borrowers and ignored for savers :lol:
Oh yes.....
Given labour shortages at present it would appear that real wages are rising at some pace in certain sectors of the economy.

Increased interest rates will hopefully hammer the housing market and see price falls but it will hit hard people who have borrowed to the limit.
Wages will rise but will they rise more or less than inflation I wonder.

Interest rates eh. I remember in 1988 (-89 maybe) mortgage interest rates rising from 8% to 16%. That really cooled the rampant house price rises that year and caused a drop in house prices. Roughly £60k up to £100k then down to £45k during 1988 for a 2bed "artisans dwelling" !. What is the current interest rate for mortgages ? - 4% I think..... Oh dear.

Loan rates are very very low at the moment and they are only ever going to go back up. That is unless the whole modern world way of using money collapses.
 

Typhoon

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Further to your original post, @brad465. Joe Malinowki of the Energy Shop price comparison site, The Energy Shop, reckons that there will be another big hike in prices next April (similar to the imminent one of £280 on average for those on Standard Variable Tariff) as stated on Money Box (R4, 18/09). If so, prices will have gone up by 50% on average between October 2020 and April 2022. This will affect consumers and businesses alike, but almost certainly affect poorer consumers more.

Given labour shortages at present it would appear that real wages are rising at some pace in certain sectors of the economy.

Increased interest rates will hopefully hammer the housing market and see price falls but it will hit hard people who have borrowed to the limit.
Two really important points.

1. I am already getting fed up with Ministers saying that wages are rising by the highest rate since whenever. They are not, average wages may be, but there are still thousands millions* stuck on Minimum Wage and judging by the pay rates advertised by a recruitment agency in the 'prosperous' south east by the bus stop I use, most jobs seem to be minimum wage or a few pence above (ie £9.00 or just over an hour). Others seem to be doing alright as I see every time I get to vote against 'Director's Remuneration' for the Building Societies that turned Bank or sold out where I had put my hard earned cash.

2. Sunak's Stamp Duty holiday just drove up prices with first time buyers rushing to get in before it ended, no thought at No 11 that maybe it will mean borrowers will have maxed out, that is before the price rises (I bet Council Tax goes up by the maximum, and I don't think the Police Precept is capped, as well as Council charges for parking, green waste collection, whatever). Interest Rates are only going one way. I really feel for young people. I wish I knew what the answer is but we are in a pretty difficult place just now and I don't see anyone with answers.


* Quote from the National Minimum Wage Statistics in the House of Commons Library (15/02/21)
The Low Pay Commission estimates that there were 2 million workers paid at or below the minimum wage in April 2019, around 7% of all UK workers. This compares to 1.5 million jobs paid at or below the NMW in 2015, before the introduction of the National Living Wage.
 

Jamiescott1

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Oh yes.....

Wages will rise but will they rise more or less than inflation I wonder.

Interest rates eh. I remember in 1988 (-89 maybe) mortgage interest rates rising from 8% to 16%. That really cooled the rampant house price rises that year and caused a drop in house prices. Roughly £60k up to £100k then down to £45k during 1988 for a 2bed "artisans dwelling" !. What is the current interest rate for mortgages ? - 4% I think..... Oh dear.

Loan rates are very very low at the moment and they are only ever going to go back up. That is unless the whole modern world way of using money collapses.

I'm fixed rate for 10 more years at 1.6%
 

deltic

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Further to your original post, @brad465. Joe Malinowki of the Energy Shop price comparison site, The Energy Shop, reckons that there will be another big hike in prices next April (similar to the imminent one of £280 on average for those on Standard Variable Tariff) as stated on Money Box (R4, 18/09). If so, prices will have gone up by 50% on average between October 2020 and April 2022. This will affect consumers and businesses alike, but almost certainly affect poorer consumers more.


Two really important points.

1. I am already getting fed up with Ministers saying that wages are rising by the highest rate since whenever. They are not, average wages may be, but there are still thousands millions* stuck on Minimum Wage and judging by the pay rates advertised by a recruitment agency in the 'prosperous' south east by the bus stop I use, most jobs seem to be minimum wage or a few pence above (ie £9.00 or just over an hour). Others seem to be doing alright as I see every time I get to vote against 'Director's Remuneration' for the Building Societies that turned Bank or sold out where I had put my hard earned cash.

2. Sunak's Stamp Duty holiday just drove up prices with first time buyers rushing to get in before it ended, no thought at No 11 that maybe it will mean borrowers will have maxed out, that is before the price rises (I bet Council Tax goes up by the maximum, and I don't think the Police Precept is capped, as well as Council charges for parking, green waste collection, whatever). Interest Rates are only going one way. I really feel for young people. I wish I knew what the answer is but we are in a pretty difficult place just now and I don't see anyone with answers.


* Quote from the National Minimum Wage Statistics in the House of Commons Library (15/02/21)


But as the Low Pay Commission makes clear https://assets.publishing.service.g...ry_of_the_UK_minimum_wage_and_its_effects.pdf those on minimum wage have seen pay increase significantly in real terms during a time of general pay stagnation. The reason why more people are on the minimum wage is because it has increased so much. One outcome of Brexit should be even higher wages for many lower paid workers as labour supply is constrained.


We estimate that the combined effect of NMW upratings on the lowest paid workers, and those paid just above them in the wage distribution, has been to increase their pay by £60bn in real terms over the first 19 years of the minimum wage. The very lowest paid now have hourly pay around £2.70 more in real terms than would have been the case in the absence of the NMW. To a full-time worker that difference is an additional £5,000 per year.
 

ainsworth74

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This will affect consumers and businesses alike, but almost certainly affect poorer consumers more.

That's fine their Universal Credit got a £20 per week uplift last year that helped address years of either frozen or 1% increases in the standard allowance whilst helping people through the pandemic. Oh...
 

Mat17

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I don't even think Universal Credit is the big one. I think the NI contribution rises (pensioners included, and pension pots etc.) Is a far more wide-ranging, and long term wealth theft by the government, that will impact all generations.

The inflation was baked in, in response to 2008, and the damage to the UK economy (short term view) was caused in the 1980s by turning the UK into a service sector economy of middlemen and shop keepers. We don't actually produce much of anything, just buy cheap abroad, slap on a profit and then sell on dearer. You can't run an economy on that, not long term and not through crashes, deflations and depressions. Of course more long term the decline of the UK started way back in the 1940s, or perhaps earlier. Certainly we were the sick man of Europe by the late 60s.

Brexit is only the tip of the iceberg. Keynesians are to blame for much of the financial mismanagement which has plagued western economies for 60 or 70 years, you can't use deficit spending to stimulate growth and suffer no consequences.
 

ainsworth74

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I don't even think Universal Credit is the big one. I think the NI contribution rises (pensioners included, and pension pots etc.) Is a far more wide-ranging, and long term wealth theft by the government, that will impact all generations.
I think it'll be a big one for the people it directly affects! My point was more just to add it to the increasing pile of issues that are mounting up. But I can certainly agree that it won't be the biggest factor and that the NI rise is likely to have a larger impact.
 

Mat17

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Sorry I didn't mean to imply that cutting the UC wasn't an issue, it will impact those that rely on it for sure. I simply meant across society in general and for forthcoming decades, NI will be a big burden.
 

DelayRepay

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In terms of energy, I wonder when we will see the debate about nationalisation raise its head again? Such a debate may be more palatable once all the small electricity companies have gone bust and it becomes obvious that the market is not really keeping prices low. And, of course, this government has shown that they are not completely adverse to state control - just look at the railways.

More broadly, I earn a decent wage so can absorb all of these increases, but they are really noticeable. I was born in 1980 and this is the first time in my adult life when I've actually really noticed the effect of inflation on my bank balance. Food costs more, energy costs more and other things seem to be creeping up in price too. When the NI changes come into effect, I will personally feel poorer, although I won't be on the breadline.

We'll also see a lot of other bills go up. My mobile phone contract is tied to CPI, so I expect it to go up in April (although that is quite a competitive market so may be able to off-set the rise by changing provider). Are rail ticket price increases still linked to CPI? I've lost track now.
 

Typhoon

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But as the Low Pay Commission makes clear https://assets.publishing.service.g...ry_of_the_UK_minimum_wage_and_its_effects.pdf those on minimum wage have seen pay increase significantly in real terms during a time of general pay stagnation. The reason why more people are on the minimum wage is because it has increased so much. One outcome of Brexit should be even higher wages for many lower paid workers as labour supply is constrained.
They have, but will they get future increases to reflect the increased costs over the next year? My point is that recently when asked about the increased cost of living, politicians have been making claims about wages going up (implying that people will be able to absorb it). It is the average wage that is going up, not everyone's wages. Unless minimum wage goes up (and this will have an impact on employers, who are already having to absorb the NI rise), these people are going to be struggling a lot. The (welcome) increase in the minimum wage has moved some people from struggling-a-lot to struggling, they may well go back to struggling-a-lot.

It is going to be a very tough time for quite a lot of people. Instead of trying to gloss over this, I think we need some honest truths.

Are rail ticket price increases still linked to CPI? I've lost track now.
Yes, very good!
 

swt_passenger

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Minor query, but what changed in 1997? As per the linked and quoted BBC article in the first post:
“Price rises have seen the biggest jump since records began in 1997
 

brad465

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Minor query, but what changed in 1997? As per the linked and quoted BBC article in the first post:
“Price rises have seen the biggest jump since records began in 1997
The Bank of England gained independence in enacting its monetary policy, which Labour pledged to do in their landslide election win. I do think it shouldn't say "since records began in 1997", and should have focused more on the former point regarding BoE independence.
 

Ediswan

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Minor query, but what changed in 1997? As per the linked and quoted BBC article in the first post:
“Price rises have seen the biggest jump since records began in 1997
The phrase 'since records began' is misleading. 1997 is when the Consumer Prices Index was first produced. Records of prices were kept before then, but that particular index was new.
 

Mat17

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It'd be interesting to see if the 'real' inflation figures are more in line with those of the 1960s and 1970s.
 

yorksrob

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Brexit is only the tip of the iceberg. Keynesians are to blame for much of the financial mismanagement which has plagued western economies for 60 or 70 years, you can't use deficit spending to stimulate growth and suffer no consequences.

Actually, is the other lot who were responsible for off shoreing manufacturing capability and turning us into a service economy.
 

Starmill

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The main issues are supply side factors related to the UK leaving the single market (not actually Brexit per se). They probably aren't going to improve, unless of course there's some re-integration to the single market...
 

swt_passenger

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The Bank of England gained independence in enacting its monetary policy, which Labour pledged to do in their landslide election win. I do think it shouldn't say "since records began in 1997", and should have focused more on the former point regarding BoE independence.
The phrase 'since records began' is misleading. 1997 is when the Consumer Prices Index was first produced. Records of prices were kept before then, but that particular index was new.
Thanks to both… :idea:
 

Mcr Warrior

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"Since records began" is indeed misleading and is invariably due to lazy journalism. Often also used with weather-related stories. Maybe find out later that the records only date back to 2005, or some such. :rolleyes:
 

Mat17

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Actually, is the other lot who were responsible for off shoreing manufacturing capability and turning us into a service economy.
The other lot? You think I'm being too critical of Thatcherite policies of the 1980s and their short-sighted, quick profit now, screw tomorrow thinking?

True Britain was not in a great place in 1979, but bleeding the patient, like some medieval surgeon, wasn't the best way of curing it.
 

deltic

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The phrase 'since records began' is misleading. 1997 is when the Consumer Prices Index was first produced. Records of prices were kept before then, but that particular index was new.
CPI on Office of National Statistics website goes back to Jan 1988 so not sure where 1997 comes from
 

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