Inflation

[RockRabbit]

Looking in Tesco today the cost of beer is noticeably higher than it was during the Xmas offers - not sure they can be blamed (and it wasn't my fault either)

I think you will find it is not just the beer. I am convinced there is an awful lot of profiteering going on in supermarkets and elsewhere riding on alleged cost increases when really that is just a lame excuse to stick prices up far higher than inflation. Of course, no-one is pointing a gun at my head forcing me to buy these things, but when it is bread, milk, energy prices, and Lavazza coffee - especially the latter which is needed more than anything - then I do feel some sort of investigation is required to see if these costs are truly justified, especially when so many folk are genuinely struggling. If they are not justified, then the culprits should be named and shamed. Regulators should be far more pro-active. To me, most of them are simply window dressing.

All this talk of 'profiteering', 'naming and shaming' and price regulation is straight from the Socialist Workers' Party manifesto. Bravo Comrade!

[Tedx]

The main cause of the alleged price gouging would be a lack of effective competition - which I find difficult to believe with supermarkets in the UK (I believe it more with energy companies)

[Nimrod103]

I think you will find it is not just the beer. I am convinced there is an awful lot of profiteering going on in supermarkets and elsewhere riding on alleged cost increases when really that is just a lame excuse to stick prices up far higher than inflation. Of course, no-one is pointing a gun at my head forcing me to buy these things, but when it is bread, milk, energy prices, and Lavazza coffee - especially the latter which is needed more than anything - then I do feel some sort of investigation is required to see if these costs are truly justified, especially when so many folk are genuinely struggling. If they are not justified, then the culprits should be named and shamed. Regulators should be far more pro-active. To me, most of them are simply window dressing.

All this talk of 'profiteering', 'naming and shaming' and price regulation is straight from the Socialist Workers' Party manifesto. Bravo Comrade!

Of course talk of 'profiteering' is rubbish. If the supermarkets were making bumper profits, Sainsbury's share price would not be currently languishing at exactly the same level as it was in May 2021. Three years going nowhere.

[88V8]

All this talk of 'profiteering', 'naming and shaming' and price regulation is straight from the Socialist Workers' Party manifesto. Bravo Comrade!

Of course talk of 'profiteering' is rubbish. If the supermarkets were making bumper profits, Sainsbury's share price would not be currently languishing at exactly the same level as it was in May 2021. Three years going nowhere.

I am no cheerleader for supermarkets, but I believe their margin is around 3%.
Not what one would call profiteering.

However, the overly cheap price of food in this country is often a result of price-gouging against farmers, so I suppose one could regard that as profiteering.

V8

[tjh290633]

January CPI unchanged at 4%

But RPI continues to come down:

Nov 5.3%
Dec 5.2%
Jan 4.9%

https://www.ons.gov.uk/economy/inflationandpriceindices


Steve

And have you looked at the actual figures? The CPI and RPI are lower now than in September last year. Effectively we have zero inflation for the last 4 or 5 months.

TJH

[stevensfo]

January CPI unchanged at 4%

But RPI continues to come down:

Nov 5.3%
Dec 5.2%
Jan 4.9%

https://www.ons.gov.uk/economy/inflationandpriceindices


Steve

And have you looked at the actual figures? The CPI and RPI are lower now than in September last year. Effectively we have zero inflation for the last 4 or 5 months.

TJH

What will happen if the RPI goes lower than the CPI?

No doubt the government will do an about-turn, claim the CPI to be no longer an official statistic and find reasons for using RPI again.


Steve

[Nimrod103]

What will happen if the RPI goes lower than the CPI?

No doubt the government will do an about-turn, claim the CPI to be no longer an official statistic and find reasons for using RPI again.


Steve

Unlikely as RPI is equal to CPI plus some element of housing costs. In the present high immigration situation, rents and other housing costs are very unlikely to be going down.

[funduffer]

January CPI unchanged at 4%

But RPI continues to come down:

Nov 5.3%
Dec 5.2%
Jan 4.9%

https://www.ons.gov.uk/economy/inflationandpriceindices


Steve

And have you looked at the actual figures? The CPI and RPI are lower now than in September last year. Effectively we have zero inflation for the last 4 or 5 months.

TJH

Yes it is how the statistics are presented. Looking back over a 12 month period can give a misleading impression of what is happening now. As Terry has pointed out, looking back over 4 or 5 months shows inflation has been quashed. In fact it is longer than that

The last 7 months (July 23 through Jan 24) of monthly CPI changes are: -0.4%, 0.3%, 0.5%, 0.0%, -0.2%, 0.4%, and -0.6%.

Average is zero! Compounded, it is less than zero!

In fact the monthly CPI changes for Feb, Mar & Apr 2023 were 1.1%, 0.8%, 1.2%. These changes will drop out of the CPI annual change by May. If inflation in the coming 3 months continues as essentially zero, the BoE will undershoot it's 2% inflation target in May.

Hopefully the BoE do look at this.

FD

[funduffer]

In fact the monthly CPI changes for Feb, Mar & Apr 2023 were 1.1%, 0.8%, 1.2%. These changes will drop out of the CPI annual change by May. If inflation in the coming 3 months continues as essentially zero, the BoE will undershoot it's 2% inflation target in May.

Hopefully the BoE do look at this.

FD

And if I am correct, I guess I should be filling my boots with bonds just now!

FD

[GoSeigen]

In fact the monthly CPI changes for Feb, Mar & Apr 2023 were 1.1%, 0.8%, 1.2%. These changes will drop out of the CPI annual change by May. If inflation in the coming 3 months continues as essentially zero, the BoE will undershoot it's 2% inflation target in May.

Hopefully the BoE do look at this.

FD

And if I am correct, I guess I should be filling my boots with bonds just now!

FD

I'm going to stick my neck out and say I still don't buy this conventional wisdom. Interest rates generally don't decline until the market expects them to keep rising -- and the market is still expecting them to fall. Perhaps we will get the odd decrease but I don't think enough to give a windfall for bonds, and I don't want to be holding FI when my expectation is that equity will outperform, perhaps in a 1995-2000 scenario (or 1950s-60s).

Interest rate policy is now arguably tight, but isn't that justified by a strong and likely strengthening economy? In my expectation banks are going to really open the credit taps at some point, they have huge scope to increase lending.


I do find it bizarre that TJH in particular is banging the deflation drum when during 15 years of actual low inflation and a gilts bonanza he was doing the opposite. What happened to inflation terror and the requirement to have a "steadily rising income" and shun fixed interest? As stated in other threads IMV the bond bull is properly dead now. [And technically gilts are still making lower lows and lower highs, i.e. a falling trend, albeit with diverging momentum recently.]


GS

[tjh290633]

I do find it bizarre that TJH in particular is banging the deflation drum when during 15 years of actual low inflation and a gilts bonanza he was doing the opposite. What happened to inflation terror and the requirement to have a "steadily rising income" and shun fixed interest? As stated in other threads IMV the bond bull is properly dead now. [And technically gilts are still making lower lows and lower highs, i.e. a falling trend, albeit with diverging momentum recently.]


GS

I am just pointing out that the indices have barely changed for the last few months. The Bank of England should be reacting to this obvious trend. Instead they are sitting on their backsides pontificating. Instead of looking at the first derivative, they should be looking at the second derivative of the inflation curve. Prices are already stagnant. Do they want them to actually fall?

I have always maintained that investing should have the objective of increasing dividend income faster than the rate of inflation and still do. If that could be achieved with fixed interest stocks, all well and good, but it can't unless prices actually fall.

The Bank's remit is to hold inflation at 2%, and to explain why it is not doing so. That includes deviation in both directions. It fails in achieving this objective.

TJH

[funduffer]

Like Terry, I am mainly in equities, but I admit I have been buying a few bonds recently every month.

I am willing to make a prediction now that CPI will be less than 2% when the ONS bulletin comes out in May. You can all mock me if I am wrong!

The BoE will be under huge pressure to reduce interest rates if inflation is <2% and base rate is still at 5.25%.

FD

[ursaminortaur]

Like Terry, I am mainly in equities, but I admit I have been buying a few bonds recently every month.

I am willing to make a prediction now that CPI will be less than 2% when the ONS bulletin comes out in May. You can all mock me if I am wrong!

The BoE will be under huge pressure to reduce interest rates if inflation is <2% and base rate is still at 5.25%.

FD

If the BoE lowers interest rates it probably won't be by much - we are getting back to the position before the financial crash as far as interest rates are concerned where the base rate ranged between 3.5% and 5.75% whilst inflation was below the 2% target. You aren't going to see the ultra-low interest rates we had after the financial crash again for a long time.

https://thinkplutus.com/uk-interest-rate-history/

https://www.worlddata.info/europe/united-kingdom/inflation-rates.php

[Nimrod103]

Like Terry, I am mainly in equities, but I admit I have been buying a few bonds recently every month.

I am willing to make a prediction now that CPI will be less than 2% when the ONS bulletin comes out in May. You can all mock me if I am wrong!

The BoE will be under huge pressure to reduce interest rates if inflation is <2% and base rate is still at 5.25%.

FD

If the BoE lowers interest rates it probably won't be by much - we are getting back to the position before the financial crash as far as interest rates are concerned where the base rate ranged between 3.5% and 5.75% whilst inflation was below the 2% target. You aren't going to see the ultra-low interest rates we had after the financial crash again for a long time.

But then Productivity growth before the financial crash averaged 2%pa, whereas since the crash it has averaged 0.6% (https://www.ft.com/content/e7a8cb3a-efc ... 84545c14f6), for which no good explanation has been forthcoming. This must have some bearing on the appropriate interest rate to be applied - probably anything over 4% will send the UK economy into a tailspin.
These issues are likely to go over the heads of the bigwigs at the Bank of England who have landed us in a recession because of their actions and lack of actions:

Nigel Farage has blamed the UK’s recession on the Bank of England. The former leader of the Brexit Party said that the economy shrinking for two consecutive quarters at the end of 2023 was “bad news” for Rishi Sunak and the Government. But he argued that the fault ultimately rested with the Bank for keeping interest rates too high for too long. He tweeted: “Recession is bad news for the Government. But, I think that the Bank of England’s interest rate policy is the real cause of this.”(https://www.telegraph.co.uk/politics/20 ... eves-live/).

[dealtn]

And have you looked at the actual figures? The CPI and RPI are lower now than in September last year. Effectively we have zero inflation for the last 4 or 5 months.

TJH

What will happen if the RPI goes lower than the CPI?

No doubt the government will do an about-turn, claim the CPI to be no longer an official statistic and find reasons for using RPI again.


Steve

No doubt?

Absolute nonsense.

[GoSeigen]

What will happen if the RPI goes lower than the CPI?

No doubt the government will do an about-turn, claim the CPI to be no longer an official statistic and find reasons for using RPI again.


Steve

No doubt?

Absolute nonsense.

Indeed. Given the RPI is about 378 and the CPI is about 131 I reckon it's impossible, but it's a stupid discussion anyway because both indexes are rebased from time to time and not simultaneously. So the index values are literally arbitrary. What is really of interest most of the time is the annual inflation measures or the change in each index, which is what Terry was talking about if his message is read carefully.

GS

[stevensfo]

January CPI unchanged at 4%

But RPI continues to come down:

Nov 5.3%
Dec 5.2%
Jan 4.9%

https://www.ons.gov.uk/economy/inflationandpriceindices


Steve

Feb CPI 3.4% Index 132.3

Feb RPI 4.5% index 381.0

[AndrewInDevon]

What will happen if the RPI goes lower than the CPI?

No doubt the government will do an about-turn, claim the CPI to be no longer an official statistic and find reasons for using RPI again.


Steve

Unlikely as RPI is equal to CPI plus some element of housing costs. In the present high immigration situation, rents and other housing costs are very unlikely to be going down.

Not quite right. RPI is calculated using a different methodology. It's based on arithmetic mean whereas CPI is based on geometrical mean. As a result RPI includes a statistical bias that on average tends to be c70 bps above CPI. RPI has been considered a flawed calculation for many years, that's why from 2030 RPI will become identical to CPIH in a definitional re-set (the title RPI needs to be retained because lots of long-term commercial contracts still refer to it). Most discounted cash flow calculations, including DB pension valuations, already take this definitional change - and de facto resultant reduction in the RPI value - into account.

But RPI does include mortgage interest costs whereas CPI does not. So when interest rates do fall RPI will fall more quickly than CPI. But Government target CPIH rather than CPI (ie CPI including housing costs).

[tjh290633]

It amazes me that no commentator has cottoned on to the static level of the price index.

Month     CPI     Change since 05/23
2023 05   131.3                0.00%
2023 06   131.5                0.15%
2023 07   130.9               -0.30%
2023 08   131.3                0.00%
2023 09   132.0                0.53%
2023 10   132.0                0.53%
2023 11   131.7                0.30%
2023 12   132.2                0.69%
2024 01   131.5                0.15%
2024 02   132.3                0.76%

Virtually no inflation for the last 9 months. Come May we shall be below the 2% target. And what will the MPC do then?

TJH

[Tedx]

It amazes me that no commentator has cottoned on to the static level of the price index.

Month     CPI     Change since 05/23
2023 05   131.3                0.00%
2023 06   131.5                0.15%
2023 07   130.9               -0.30%
2023 08   131.3                0.00%
2023 09   132.0                0.53%
2023 10   132.0                0.53%
2023 11   131.7                0.30%
2023 12   132.2                0.69%
2024 01   131.5                0.15%
2024 02   132.3                0.76%

Virtually no inflation for the last 9 months. Come May we shall be below the 2% target. And what will the MPC do then?

TJH

Blame some other measurement as a reason for keeping rates high.

Those rich folk are addicted to their risk-free money