Inflation crisis: Due to various factors including war in Ukraine and Covid-19.

[brad465]

Just when you think we couldn't sink any lower, Kwarteng has told energy companies that we could be heading for a mild UK winter and this would help with the cost of living crisis:

Subscribe to read | Financial Times

News, analysis and comment from the Financial Times, the worldʼs leading global business publication

on.ft.com

The UK business secretary has told energy companies that Britain could be heading for a mild winter, in a meteorological development that might ease a cost of living crisis...

So the Government have resorted to grasping at straws for policy.

 

[AlterEgo]

Glad to hear global warming has one benefit, at least.

 

[birchesgreen]

Just when you think we couldn't sink any lower, Kwarteng has told energy companies that we could be heading for a mild UK winter and this would help with the cost of living crisis:

Subscribe to read | Financial Times

News, analysis and comment from the Financial Times, the worldʼs leading global business publication

on.ft.com

So the Government have resorted to grasping at straws for policy.

So he is a weather man now as well?

To be honest considering the drivel that usually comes out of the government i'm now expecting us to be waist deep in snow by the end of the month...

 

[brad465]

Glad to hear global warming has one benefit, at least.

So he is a weather man now as well?

To be honest considering the drivel that usually comes out of the government i'm now expecting us to be waist deep in snow by the end of the month...

What's also worth remembering is this, even if it is a mild winter, that mild winter could also bring widespread and/or prolonged flooding, as it did in places last winter, and the winter before, and most prominently in 2013-14 (when the Somerset levels flooded for weeks). Of course a mild winter isn't a guarantee of a wet one, but if it was that will bring its own problems.

 

[TravelDream]

What an absolute joke.

Generally for Western Europe.
Short-term forecasting (today, tomorrow and the day after) is pretty accurate.
Mid-term forecasting (3-9 days) is reasonably good, but is obviously less accurate as time goes on.
Long-term forecasting (from 10 days) isn't a million miles off educated guesswork.

It is total clutching of straws. Nobody at all has the foggiest what the weather in going to be like in December or January.

 

[yorksrob]

What's also worth remembering is this, even if it is a mild winter, that mild winter could also bring widespread and/or prolonged flooding, as it did in places last winter, and the winter before, and most prominently in 2013-14 (when the Somerset levels flooded for weeks). Of course a mild winter isn't a guarantee of a wet one, but if it was that will bring its own problems.

That's a good point. It often seems that what we avoid in terms of cold, we suffer in terms of wet.

 

[Cowley]

That's a good point. It often seems that what we avoid in terms of cold, we suffer in terms of wet.

Very much so. I work outside a lot and it’s very noticeable over winter.

 

[yorksrob]

Very much so. I work outside a lot and it’s very noticeable over winter.

Noticeable outside and on the news sadly.

 

[Peter Sarf]

Do you think that you might, just possibly, be making quite a large and sweeping generalisation here?

It is of course a generalisation but I think it is generally the case today that the UK population has a higher expectation than it had 40 years ago. I think that expectation may sadly be becoming unrealistic.

An alternative is that you could try to use incentives, such as tax, tarriffs etc to try and encourage the population to spend money on ways that benefit the domestic economy for longer. Simplistically, you would have a much lower rate of VAT on activities such as hospitality and domestic food and drink, but higher VAT on electronic goods which tend to be imported.



I used to do temping on farms and in food factories in the 90's (also in Kent). Although it was mostly indoors - packing etc. Being quite a rural area it formed the majority of such work.

In the case of hop picking I used to get told that in the past (so before the 1970s) whole families used to come out from the East End of London and stay in quite basic accommodation. It would be a paid holiday - fresah air must have been a good feature.

What an absolute joke.

Generally for Western Europe.
Short-term forecasting (today, tomorrow and the day after) is pretty accurate.
Mid-term forecasting (3-9 days) is reasonably good, but is obviously less accurate as time goes on.
Long-term forecasting (from 10 days) isn't a million miles off educated guesswork.

It is total clutching of straws. Nobody at all has the foggiest what the weather in going to be like in December or January.

Longterm is hardly reliable as you say. But we all know that it will be colder in January and February than it is in June and July. So we all know we will be using more fuel that time of year. The cost of that fuel has gone up a lot it seems so I doubt if a mild winter will be cheaper than previous harsher winters. So I think Kwarteng is very much clutching at pointless straws.

I have heard that the supply of gas might improve leading to prices coming back down. Is that more likely than a very mild winter I wonder. That is even though I am not relying on prices coming down before the Northern hemisphere gets through winter !..

 

[david1212]

Today at work we were told now paying four times as much for energy as 12 months ago. Electricity now ~30p/unit but I don't know actual previous or current gas price. Unlike domestic supply there is no cap set for industry be that a small or large business.

To a point fortunate as the use is heating, lighting and IT system rather than any aspect of production. Of course on all new quotations the allowance on overheads will increase but due to the timescales from quotation to placement of order to delivery and sign off then payment it could be a couple of years before payment. Even where stage payments a time lag of months.

Even if now some still have a fixed price that will expire. Across the board this is in addition to increased delivery costs from both fuel and wages. Every business will be passing these increases down the chain.

By next spring if not sooner could the 12 month CPI / RPI inflation rates reach 10% ?

 

[brad465]

Inflation on the rise, so what to the Bank of England do? Keep interest rates at a record low, even though they also forecast a 5% peak in inflation next year:

Bank of England hints at future interest rate rise

The Bank signals it will raise interest rates in "coming months", but holds off on an immediate increase.

www.bbc.co.uk

The Bank of England has voted to keep interest rates at their record low level of 0.1%, spurning calls for an increase to tackle surging inflation.
The Monetary Policy Committee (MPC) voted 7-2 in favour of no change.
Rates were cut to their current level in March last year in response to the effects of the coronavirus pandemic.
But the reopening of the economy has fuelled price rises, prompting expectations that the Bank would increase borrowing costs.
The Bank has signalled it will raise interest rates in "coming months" as it warned of a two-year cost-of-living squeeze for households.
Investors were betting on an immediate rate rise. But policymakers stopped short of this, saying there was "value" in waiting to see how the jobs market coped with the end of the furlough scheme.

How much further could prices rise?​

Electricity and gas prices have surged as the global economy reopens.
Factories and businesses are also struggling with staff shortages and a backlog of orders, which has also pushed up prices.
The Bank expects inflation to peak at 5% next April, up from 3.1% in September.
This would be the highest rate in more than a decade and far higher than the Bank's target of 2%.
The Bank said households faced "substantially" higher energy bills next year.
Policymakers also said food prices were likely to rise in the run-up to Christmas.
However, they added that the sharp increase in inflation was expected to be "temporary", with price rises expected to ease back towards 2% in the second half of next year.

Yes I know rates don't have to go up much to cause major debt defaults and market crashes, but the system can't stay on life support forever, it needs putting out of its misery and changing for good.

 

[yorksrob]

Inflation on the rise, so what to the Bank of England do? Keep interest rates at a record low, even though they also forecast a 5% peak in inflation next year:

Bank of England hints at future interest rate rise

The Bank signals it will raise interest rates in "coming months", but holds off on an immediate increase.

www.bbc.co.uk

Yes I know rates don't have to go up much to cause major debt defaults and market crashes, but the system can't stay on life support forever, it needs putting out of its misery and changing for good.

I think one has to look at the mechanism of interest rates. Traditionally they've been used to make it more difficult to borrow stuff, buy stuff and restrict economic activity this reducing inflation. How would that even work when most inflationary pressures are from overseas and won't respond to UK monetary policy anyway. You'd just be damaging the economy without doing anything to reduce inflation.

Higher interest rates shouldn't be seen as an anti-inflation panacea.

 

[brad465]

I think one has to look at the mechanism of interest rates. Traditionally they've been used to make it more difficult to borrow stuff, buy stuff and restrict economic activity this reducing inflation. How would that even work when most inflationary pressures are from overseas and won't respond to UK monetary policy anyway. You'd just be damaging the economy without doing anything to reduce inflation.

Higher interest rates shouldn't be seen as an anti-inflation panacea.

You say that, and you do have a point, but the Bank of England Governor has come out and said "sorry for rising inflation", which in effect is an admission they can do something about it:

Bank of England sorry for rising cost of living

Governor Andrew Bailey says households are feeling the effects of growing inflation.

www.bbc.co.uk

The Bank of England governor has said he is "very sorry" that UK inflation is rising amid forecasts the cost of living could reach as much as 5%.
Andrew Bailey told the BBC that households were already feeling the impact of rising prices.
"I'm very sorry that's happening," he said. "None of us want to see that happen."
On Thursday, the Bank surprised financial markets by voting to keep the interest rate unchanged.
It signalled that the rate - currently at a historic low of 0.1% - will rise in the "coming months" as inflation is expected to grow.
However, the majority of the Bank's Monetary Policy Committee (MPC) voted to hold borrowing costs during November's meeting, in part to see how the jobs market had coped with the end of the furlough scheme.

 

[yorksrob]

You say that, and you do have a point, but the Bank of England Governor has come out and said "sorry for rising inflation", which in effect is an admission they can do something about it:

Bank of England sorry for rising cost of living

Governor Andrew Bailey says households are feeling the effects of growing inflation.

www.bbc.co.uk

To be honest, I heard the interview and it sounded more like a "sorry, but there's not a lot we can do about it" admission.

The only way to avoid such problems in the longer term is to be more self-sufficient as a country and less exposed to external pressures.

 

[nlogax]

which in effect is an admission they can do something about it:

That's not the impression I got from the interview.

 

[brad465]

To be honest, I heard the interview and it sounded more like a "sorry, but there's not a lot we can do about it" admission.

The only way to avoid such problems in the longer term is to be more self-sufficient as a country and less exposed to external pressures.

That's not the impression I got from the interview.

These views maybe the case, but a large chunk of society hearing this will not be impressed he's said that and do believe the bank needs to do something about it. The comments section of the Financial Times reporting of several articles has been of the view that Bailey's reputation has gone and are critical of the overall behaviour here, and this is a paper/site that appeals to those who, in the words of Jim Hacker, "own the country".

 

[yorksrob]

These views maybe the case, but a large chunk of society hearing this will not be impressed he's said that and do believe the bank needs to do something about it. The comments section of the Financial Times reporting of several articles has been of the view that Bailey's reputation has gone and are critical of the overall behaviour here, and this is a paper/site that appeals to those who, in the words of Jim Hacker, "own the country".

Then it's up to them to explain how they think increasing interest rates will control inflation when the pressures are from overseas. All you will get is stagflation.

A more effective policy would probably be to try and direct people to spend their money on goods and services that are produced domestically and less subject to inflationary pressures.

 

[brad465]

With rising fuel and energy costs starting to impact, inflation has surged to 4.2%, now more than double the Bank of England's target:

Inflation: UK prices soar at fastest rate for almost ten years

Inflation surges to 4.2% on rising fuel and energy costs, paving the way for an interest rate rise.

www.bbc.co.uk

The cost of living surged by 4.2% in October - the highest rate in almost 10 years - due to rising fuel and energy costs, according to new data.

The consumer price index measure of inflation is now more than double the Bank of England's target.

The costs of transport, gas and electricity bills and second hand cars all climbed, the Office for National Statistics said.

Inflation has risen since the economy reopened after the Covid lockdown.

The Bank of England has said it may have to increase interest rates "in the coming months" to tackle the problem.

October's reading is far higher than the 3.1% rise recorded in the year to September and ahead of economists' forecasts.

Also worth considering there are many who do not believe this value and think inflation is actually much higher than what's being reported.

 

[Dai Corner]

With rising fuel and energy costs starting to impact, inflation has surged to 4.2%, now more than double the Bank of England's target:

Inflation: UK prices soar at fastest rate for almost ten years

Inflation surges to 4.2% on rising fuel and energy costs, paving the way for an interest rate rise.

www.bbc.co.uk

Also worth considering there are many who do not believe this value and think inflation is actually much higher than what's being reported.

Everyone's personal inflation rate will be different, depending on how they spend their money. The ONS publish these figures as an average to inform policy makers.

 

[david1212]

With rising fuel and energy costs starting to impact, inflation has surged to 4.2%, now more than double the Bank of England's target:

Inflation: UK prices soar at fastest rate for almost ten years

Inflation surges to 4.2% on rising fuel and energy costs, paving the way for an interest rate rise.

www.bbc.co.uk

Also worth considering there are many who do not believe this value and think inflation is actually much higher than what's being reported.

I am doubtful and even if right now the effects of energy and transport labour cost increases have yet to fully work through the system to the end user. By April while I hope not I would not be surprised if 10%.

Everyone's personal inflation rate will be different, depending on how they spend their money. The ONS publish these figures as an average to inform policy makers.

Indeed. It would be interesting to split this into several groups that different expenditure e.g. most on essentials and very little on luxuries or entertainments.

I feel for those only with the state pension. They will get just over 3% from April then have to wait another 12 months.
Gas and electricity has jumped up now if no fixed contract and if one will when that ends. Unless a global change the cap will go up again next year. In 12 months time current prices could look a bargain.
Food is going up and this will continue just due to increased transport costs and overheads.

 

[asw22]

This is a strange economy where some groups have gained over the past two years, while others have suffered.

Some rely on food backs to survive
Some cannot afford to put the heating on and rely on blankets to keep warm
Rent increases

Some who work from home and save substantially on commuting costs
House sellers who continually see skyward house prices and houses that sell within 48 hours of being put on the market

Some on fixed incomes whose lifestyle hasn't really changed much

I have found 2020 and 2021 difficult years - there are constant news stories about job shortages, whereas in reality less than 5% of employers respond and then you are competing against record numbers of candidates in multi stage phone / video / face to face interviews.

Perspective from different groups will be different but can we say that food and fuel prices have only risen by 4.2%?
Especially when a product for £1 is now £1.25 or even £1.50
There's probably other goods and services that certain groups access that have not increased so fast that are pulling the average inflation down to 4.2% I would think

 

[Hadders]

RPI is currently 6% I know it's not used these days like it used to be but it does give some historical context.

 

[brad465]

The Bank of England have finally moved, even if only to 0.25%:

Interest rates rise for first time in three years

Policymakers increase rates from their historic low despite fears that Omicron could slow the economy.

www.bbc.co.uk

The Bank of England has raised interest rates for the first time in more than three years, in response to calls to tackle surging inflation.
The Monetary Policy Committee voted 8-1 in favour of the increase to 0.25%.
Rates were cut to a record low of 0.1% in March last year in response to the effects of the coronavirus pandemic.
The increase came despite fears that the Omicron variant of Covid could slow the UK economy by causing people to spend less.
The Bank said global asset prices had initially fallen in response to news of the new variant, but had since largely recovered.
The committee also voted unanimously to maintain the Bank's asset purchase scheme at £875bn.
The last time the Bank raised interest rates was in August 2018, when they reached 0.75%.
They were then cut twice in March 2020 at the start of the pandemic.
Figures issued on Thursday showed the cost of living surged by 5.1% in the 12 months to November, up from 4.2% the month before, and its highest level since September 2011.

 

[jon0844]

I guess that gets the ball rolling... with those NI increases next year, inflation at 5-7%, mobile phone companies intending to up bills (CPI+fixed percentage) by as much as 10% and the likely increase in the cost of fuel and energy, I have no doubt people will be well chuffed to have their mortgages go up.

2022 is going to be an interesting year.

 

[Dai Corner]

I guess that gets the ball rolling... with those NI increases next year, inflation at 5-7%, mobile phone companies intending to up bills (CPI+fixed percentage) by as much as 10% and the likely increase in the cost of fuel and energy, I have no doubt people will be well chuffed to have their mortgages go up.

2022 is going to be an interesting year.

At least mortgage payers (and other debtors, including the Government) will see the value of their debts decrease in real terms. Savers will see their savings decrease in value.

 

[The Ham]

At least mortgage payers (and other debtors, including the Government) will see the value of their debts decrease in real terms. Savers will see their savings decrease in value.

Indeed, someone with a £100,000 mortgage (assuming that they get a reasonable pay rise) would see their mortgage feel like it's gone down to £95,000 however could see their payments increase by £150 per year (assuming a 0.15%) increase in interest payments.

Now unless they've got a 34 year term on their mortgage the decrease in value in the loan would still be "better" than the extra payments.

Obviously this only works if there's a 5% increase in pay, if there's no increase then there's £150 more to find each year, which for many (especially with the other increases and the increases in NI payments) could make life very difficult.

 

[Baxenden Bank]

RPI is currently 6% I know it's not used these days like it used to be but it does give some historical context.

I know, I had some National Savings Bonds mature last week. Quite a shock, I had forgotten what interest on savings looked like. They have rolled over and will be paid at CPI in future. Still a much better deal than anything out there.

 

[david1212]

I know, I had some National Savings Bonds mature last week. Quite a shock, I had forgotten what interest on savings looked like. They have rolled over and will be paid at CPI in future. Still a much better deal than anything out there.

I have some Index Linked Saving certificates which are nominally holding their value.

I also have ISA's with the interest rate at ~0.5%. At 2% inflation they were loosing 1.5% but now 4.5% against the November CPI and over 7% against the RPI.

My private pension and some other investments are in stocks and shares so linked to a mix of FTSE 100 & 250, worldwide funds and property. I feel having everything in this mix is too big a risk. Back 18 months ago even with the optimism then of a return to normal by November if you had asked if I thought the FTSE would recover to over 7000 by the end of 2021 I would have said no.

 

[brad465]

This thread on Twitter today highlights how inflation reported seems to be underestimated, particularly for those with the least money to spend:

https://twitter.com/BootstrapCook/status/1483778776697909252

Woke up this morning to the radio talking about the cost of living rising a further 5%. It infuriates me the index that they use for this calculation, which grossly underestimates the real cost of inflation as it happens to people with the least. Allow me to briefly explain.

Continued

 

[The Ham]

Indeed, and whilst I've been very fortunate (and anyone who tells you that it's all down to personal skill that they are where they are now doesn't understand that just by being born in, say, the UK means that they have already won life's lottery - although that's not to belittle those who have a truly horrid time here as there will still be far too many) not to have been in the situation where I've been worried about money to the extent where choices have to have been made between essential things (i.e. easy or heat) I have always questioned why I'm the "basket of goods" there's things like TV's and other tech which will almost always bring the cost of living down.

Now I know that I'm probably rare in that in the circa 15 years which I've been married we've only brought 3 TV's (and two of those are currently in use) with on of those only being brought because we had a lodger and it was the deal for them moving in. As such the cost of a TV isn't something which makes a big impact on our budget. Even understanding that we're towards one end of the spectrum, it's unlikely that those below the top 50% of household incomes are likely to buy a TV even every few years, yet it's there impacting the inflation value.

This discrepancy first came to my attention when an MP3 player was added to the basket of goods when it was still fairly new tech and not really something that many people I knew had and those who did where doing reasonably well (and at the time I wasn't exactly poor and was still living at home).