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The truths they don't want you to read....

Tuesday, February 15, 2011

Inflation

The dramatic and continuing increase in inflation is very worrying for the overall economy, and is symptomatic of the problems that the coalition inherited; and the methods that they have used to address these issues.

I forecast interest rates increasing to 2% by the end of the year, if not to 2.5%.

Inflation is going to take some time to level off, and then decrease, and I wouldn't be surprised to see it around 6% by the year end, and only slowly decreasing to the current level by the end of 2012, with interest rates of 3-4%.

Whatever else, the next 2-3 years are going to be very tough for almost everyone and every sector of business, except, probably, banks.

7 comments:

Anonymous said...

Will I be controversial and say....good.

Interest rates are too low. Houses were (and still are) too expensive. People overspent on housing (assuming values would continue up) and generally got a little bit greedy living a lifestyle they could not afford. That is bad for society.

People need to tighten their belts and live within their means.

Interest rates need to go up, pensioners need to get their income back and house prices need to come down so people on lower wages can afford to buy again.

I don't really understand the inflation one, but I guess things like fuel duty hikes and VAT affect the headline numbers right now.

Angus said...

Whilst house prices and excessive borrowing to fund consumption have to be brought under control, the impact of inflation is to reduce the real living standards of the poorest.

Pensioners and the unemployed live on basically fixed incomes which reduce by inflation and increase by the (lower) cost of living or the (lower) interest rate.

So whilst it might be 'good' and 'beneficial' for the economy overall in the long term, there are large groups that will suffer and they need to be recognised, rather than ignored.

Anonymous said...

The unemployed and the word protection in the same sentence??

I think it is a widely recognised fact that they have had too much 'protection'

Anonymous said...

there are large groups that will suffer

As a pensioner who prudently saved and has been trying to live off my significantly reduced income because of low interest rates (why should I be forced to gamble on the stock exchange for higher returns)lets hope these large groups who will suffer are the ones that got us into the sh*t in the first place.

I have NO sympathy for those who borrowed excessively, whether it be on their credit cards or mortgage, they deserve all they get. But as with all things in life that are unfair the politicians will pander to them so as not to lose their votes.

Back in the 80's when I started a mortgage interest rates were 10 - 12% even 15% at one point, Oh to have rates like that again just think of the income us savers would have!

Tony Giles said...

A rise of inflation is bad for anyone living on a fixed income or savings, the net amount you have to live off will reduce.

Even if interest rates go up by a point or more, the value of your savings is still going to be eroded by the difference, and any resultant slow down in the economy will affect what interest rate you actually get on your savings. (Even if you don't invest in the stock market, the banks do.)

Although it may appear counter-intuitive, a high inflation rate benefits people with debts (as inflation helps "pay off" the debt) so it's not going to hurt those that got us into this mess to start with or those who are over-extended.

And if people lose their houses, can't pay their debts. Who do you think pays for this? At the end of the day we all do.

Anonymous said...

Much of the inflationary pressure is cost-push — increasing commodity prices. This may mean that inflation actually keeps increasing, even with rising unemployment.

Welcome to 1976!

Anonymous said...

Tony anon 8:22 here,

I'm sure the reasoning in your comment is correct, but it smacks of just the sort of thing our politicians say, inflation up "bad for us" inflation down "bad for us".

Most of us can only assess our situation by what we see coming into our coffers, and for me my income is down, with higher interest rates I was able to save and thereby offset the negative aspects of inflation by putting a little bit more away every time my bonds come up for renewal.

As for Banks using the stockmarket to invest my savings in, yeh well of course they do but they take the risk if their investments all go tits up, I'm protected I don't lose my money as long as I stay below maximum that the compensation scheme that protects savers.

So as far as I'm concerned interest rates up please and the sooner the better. I will then be able to start spending again on things other than the necessities, thus helping the economy recover. Unless I buy those nasty foreign imports!