Do we really think inflation will fall to 2% ?

[DVDWotcha]

Seem to be the case that the Bank thinks inflation will fall to 2% in the medium term.

http://www.bbc.co.uk/news/business-11721010

But I don't know how many times we have heard inflation reports with "unexpected" rises in this or that, keeping inflation high.

Strikes me 2% is unrealistic given the way things are going. :shrug:

Are we going to get a hammering on interest rates to bring it back into control or are they happy to have us become relatively poorer by having inflation run well above most savings rates ? :suspect:

[farmroad38]

The previous quarterly report from the BoE showed they had missed their 2% target in 40-odd out of the last 50 months - all the time citing concerns over deflation. I've seen no signs of that in general - as indicated by the RPI, prices are going up, not down.

The problem is, if they raise interest rates there is likely to be carnage in the housing market. A lot of people in negative equity have been surviving because they've fallen onto a low SVR - if that goes up, and they can't get onto a better deal because the banks won't lend them the amount of money they need, some are going to struggle to make their repayments and could have their houses repossessed.

However, as you say, the alternative is that we all get a little poorer every month as our savings are effectively eroded.

It's a bugger, innit?

[farmroad38]

Latest inflation figures out:
http://www.bbc.co.uk/news/business-11764588

'Unexpected' rise again... what a surprise.

Anybody getting any inflation-beating pay rises this year? No?

[kaneda]

Gah prior to the big collapse in 2008 i was hoping interest rates would revert to 1990 style rates and reward prudent savers.......
Instead cripple savers now and by the time rates do go up we won't have anything left.

/moan

[rbullivant]

Just ask Germany in the 1930's, if you print stupid amounts of money (quantitive easing) you will get inflation. While we had deflation they thought it would balance out, it hasn;t

[chrisjm]

if its unexpected, they arent very good at their job. the reasons for high inflation are obvious to a normal person but not the experts...

[DVDWotcha]

Well, VAT now up to 20% and many experts suggesting retailers will use it as an excuse to mask price rises. Looks like inflation will stay above 4% for quite some time.

Don't think it will be too long before interest rates will have to rise.

Many people are either not getting pay rises or rises of 1-2% so a lot of people will need to reduce their outgoings.

This could all be bad for economic recovery.

[Nebiroth]

No-one gives a stuff about savers. The banks don;t make a profit out of them, so they couldn't care less. They're invisible to the BoE, whereas profligate over-borrowers and people who took out massive mortgages on the assumption that rates would be eternally low, that they'd never be unempoyed and that the cost of living would never rise are given priority. Higher rates might cause house prices to drop (this is always curiously regarded as a bad thing mostly because people feeling rich 'cos their house is worth a lot tend to borrow and spend, and there's a particularly stupid mindset that insists on houses being regarded as investments and not homes).

You only have to read and listen to all the news: higher rates are always stated as "risks" and "threats" and when they happen there is univeral gloom.

You realise the BoE's view on savers when one of the members that sets rates told savers they should forget about getting any return on their savings and just spend them to help the economy instead.

I guess when you're some fatcat board member with a gigantic salary and even more gigantic pension pot you get at 55, you don;t need savings.

[rbullivant]

Its a theory I suppose. If your mortgage comes down you'll spend the excess, if you have savings then you get no return and you'll spend the savings.

[DVDWotcha]

Well inflation at 3.7% due to the expected "unexpected" rises in food, oil, etc.etc.

I reckon we'll see interest rates rise pretty soon.

[Mr Silly]

Well inflation at 3.7% due to the expected "unexpected" rises in food, oil, etc.etc.

I reckon we'll see interest rates rise pretty soon.going by some analysts, perhaps not immediately
http://www.thisismoney.co.uk/interest-rates

[farmroad38]

Magic Merv now saying... well, basically he's saying he doesn't have a clue. Might go up, might go down. Who knows?

http://www.bbc.co.uk/news/business-12478468

All I know is that my savings are being eroded away faster every month, and that every time I go to the supermarket or petrol station, it costs a little more. Sounds like pressure is growing within the MPC to raise rates though.

[rbullivant]

I think thats the point mate, your money is getting less each month, better get out there and buy a new car.

[Mr Silly]

On the one had, you need to have money saved in case of problems, such as job loss. However, that money isn't doing much at the moment in the bank and is actually depreciating. So its not a bad idea to spend the money on house improvements that will add value to your house

[rbullivant]

and when the next housing boom comes you can clean up!

[rick67]

Economic forecasts are completely pointless. If they're ever right it's a complete fluke. It's simply impossible to model a system as complex as the economy with any certainty. Think of how many factors and feedback loops are involved. I really can't understand why anyone would choose this as a profession or why anyone would bother to attempt any type of forecast.

This leads me on to another bugbear "economic growth". Everytime the economy fails to grow the govt views it as a bad thing...but how the f can the economy grow indefinitely on a finite planet? Growth is pretty much based on how much **** we've managed to consume - or to put it another way, how much **** we've managed to destroy/degrade or use up in the environment.

Problem is classical economics places no worth on the external environment or the services (clean air, water etc) it provides...so in reality "growth" is pretty much a mirage. Nothing can grow materially without something being consumed. Drives me f crazy that governments never mention this.

Mind you it's nice to see that the banks have made up another nice set of imaginary numbers (profits) to justify another huge round of bonuses...Agghhh!!!...holds head in hands and has another swig of gin...

[farmroad38]

Yet another big jump in inflation this month - CPI up from 4% to 4.4%, RPI up from 5.1 to 5.5.

http://www.bbc.co.uk/news/business-12815228

Surely interest rates have to go up next month? How much longer can Mystic Merv claim that this is just temporary?

[Symo]

Yet another big jump in inflation this month - CPI up from 4% to 4.4%, RPI up from 5.1 to 5.5.

http://www.bbc.co.uk/news/business-12815228

Surely interest rates have to go up next month? How much longer can Mystic Merv claim that this is just temporary?

Trouble is that inflation rising, this time round, is a little different. It isn't demand-led so, raising interest rates will not have the desired effect. Most of the inflationary pressure is due to commodity speculation and, when, the money moves out of the commodity markets into the "next big thing" inflation will come tumbling down. IMHO obviously.

[farmroad38]

Hey, guess what? We're still going to get deflation in "the medium term"...

http://www.bbc.co.uk/news/business-15196078

So they're going to print more money to stop it happening.

How long is this medium term exactly? Is it relative to the cycle of ice ages?

[Nebiroth]

Hilariously, the BoE's website still shows (in the "About the Bank" section), and I quote,

"The strategic priorities endorsed by Court for 2011/12 are:

Core Purpose 1 - Monetary Stability

Strategic priority 1. Keep inflation on track to meet the 2% target."

Curiously enough, Mervyn "doesn't bother me or my mates with inflation-proof pensions tralalalalala" King and Co seem to be persuing inflationary strategies, viz printing money and holding rates at near zero whilst inflation rages unchecked, that are the complete opposite to the Bank's self-proclaimed top priority.

The BoE has become a standing joke, the letter to the Chancellor saying "OK, so I've completely failed, what can you do (shrug)" becoming a monthly ritual. And they've been claiming inflation will come down for how long now? Instead it keeps going up. Suits the government's purpose of course.