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Is rising inflation looming?

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88V8
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Re: Is rising inflation looming?

#411585

Postby 88V8 » May 13th, 2021, 10:46 am

GoSeigen wrote:
GoSeigen wrote:I'm not expecting a general rapid rise in long-term inflation yet, but rather short, very severe spikes...GS

One year on, and here it is. Will be interesting to see how high it goes.

And the short severe downspikes in SPs may will create some buying opportunities, so not all bad.

V8

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Re: Is rising inflation looming?

#411611

Postby Nimrod103 » May 13th, 2021, 11:36 am

Lanark wrote:
Nimrod103 wrote:
Stonge wrote:Everything I have bought recently has cost a lot more than when I last bought it, not more than two or three years ago: printer cartridges, bedroom furniture, smart phone, clothes, petrol, PC, mugs etc.

Inflation is here and it's going to get worse.


Petrol prices 2 or 3 years ago were very similar to the levels seen today:
https://www.racfoundation.org/data/uk-p ... -over-time

Given the huge decrease in driving I would have expected prices to fall.


They did fall, and then rise again. But the OP said petrol cost a lot more than two or three years ago, and that is not true. Despite the resurgence of economic activity after the pandemic, oil prices remain steadfastly below $70.

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Re: Is rising inflation looming?

#412883

Postby GoSeigen » May 18th, 2021, 8:45 am

GoSeigen wrote:I'm not expecting a general rapid rise in long-term inflation yet, but rather short, very severe spikes in inflation -- pretty much for the reasons you've given.

[...]

One year on, and here it is. Will be interesting to see how high it goes.


Anyone who has any doubts that inflation is on its way back need only read the nonsense being written in the media these days, classic example here:

https://www.bloomberg.com/europe
The ECB needs to make sure the current market realignment does not get out of hand, especially when it has all the available tools to prevent it. In 2018, for example, the 10-year Italian yield jumped to 3.75% in October from 1.75% in May; a replay of that magnitude would be an epic disaster for the nation’s finances. Lagarde needs to swiftly display leadership akin to Draghi’s “whatever it takes” mantra.

Executive summary: it is the Central Banks' role to print money and buy government securities at ruinously high prices so that their fiscal incontinence will be obscured. This is a drastic change from post 2008 policy, which was to avert deflation by expanding money supply: this policy is to create the illusion that inflation need have no effect on bond yields -- the reductio ad absurdum in real life of MMT's loony idea that countries can print as much money as they like.

Be warned: all of us will pay for this in rising prices.

GS

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Re: Is rising inflation looming?

#412919

Postby anon155742 » May 18th, 2021, 10:46 am


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Re: Is rising inflation looming?

#413136

Postby Itsallaguess » May 19th, 2021, 7:35 am

From the BBC this morning -

The UK inflation rate rose to 1.5% in the 12 months to April, up from 0.7% in March, official figures show.

The difference was mainly due to price rises this year compared with falls at the beginning of the covid pandemic, the Office for National Statistics (ONS) said.

The rise "was seen most clearly in household utility bills and clothing prices", it said.

A rise in the price of crude oil also led to higher petrol prices, it added.


Image

Source, and full story here - https://www.bbc.co.uk/news/business-57165266

Cheers,

Itsallaguess

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Re: Is rising inflation looming?

#413178

Postby 88V8 » May 19th, 2021, 10:29 am

Itsallaguess wrote:The UK inflation rate rose to 1.5% in the 12 months to April, up from 0.7% in March, official figures show.

And once again the market has taken a dive.
Govts want inflation. They need inflation to deflate their debt. So it will happen.
Just not like the 70s, I hope.
The only good thing about the 70s was hot pants.

V8

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Re: Is rising inflation looming?

#413179

Postby BellaHubby » May 19th, 2021, 10:34 am

88V8 wrote:The only good thing about the 70s was hot pants.
V8

I bet you looked really good in them :)

bh

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Re: Is rising inflation looming?

#413521

Postby stevensfo » May 20th, 2021, 12:56 pm

Itsallaguess wrote:From the BBC this morning -

The UK inflation rate rose to 1.5% in the 12 months to April, up from 0.7% in March, official figures show.

The difference was mainly due to price rises this year compared with falls at the beginning of the covid pandemic, the Office for National Statistics (ONS) said.

The rise "was seen most clearly in household utility bills and clothing prices", it said.

A rise in the price of crude oil also led to higher petrol prices, it added.


Image

Source, and full story here - https://www.bbc.co.uk/news/business-57165266

Cheers,

Itsallaguess


Not forgetting that, although the CPI may be 1.5%, the RPI is now 2.9%

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

No idea which is the better measure, but I tend to stick to RPI for that margin of safety. i.e. I have to beat the RPI.

Also, CPI uses something called 'Hedonic regression' which, though not an expert, sounds like a bit of a fiddle factor, since it involves people's reaction to rising prices rather than the prices themselves.

Any idea if interest rates will rise soon? The discrepancy between savings accounts and inflation is getting quite large now.

My Smile savings account is now offering a eye-watering 0.09% if you already have an account. ;)

Steve

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Re: Is rising inflation looming?

#413548

Postby dealtn » May 20th, 2021, 1:49 pm

stevensfo wrote:
Also, CPI uses something called 'Hedonic regression' which, though not an expert, sounds like a bit of a fiddle factor, since it involves people's reaction to rising prices rather than the prices themselves.



You don't think people change their behaviours as result of prices changing? You are more likely "fiddling" by ignoring behavioural changes - simpler doesn't make for more accuracy.

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Re: Is rising inflation looming?

#415673

Postby MDW1954 » May 27th, 2021, 9:52 pm

stevensfo wrote:
Not forgetting that, although the CPI may be 1.5%, the RPI is now 2.9%

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

No idea which is the better measure, but I tend to stick to RPI for that margin of safety. i.e. I have to beat the RPI.

Also, CPI uses something called 'Hedonic regression' which, though not an expert, sounds like a bit of a fiddle factor, since it involves people's reaction to rising prices rather than the prices themselves.

Steve


The government is admittedly re-thinking its plans to scrap the RPI index -- a consultation is underway, whereas once it was a done deal.

To give you an economist's answer: CPI probably *is* the better measure, but RPI is written into huge numbers of legally-binding contracts as the inflation index that matters. So if they do scrap RPI, they'll probably have to come up with a supplementary CPI index that measures much the same thing. A bit like today's CPI-H measure, for instance.

Hedonic regression: I've never done any hedonic regressions (although plenty of other econometric modelling), but the basic idea isn't difficult. Compare the price of today's computers to those of the 1980s. As an example, the computer on which I'm typing these words cost less than the computer I bought in 1989. But it's infinitely more powerful: its RAM is largely than the hard drive of that computer.

That's the sort of thing that hedonic regression does.

MDW1954

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Re: Is rising inflation looming?

#415737

Postby stevensfo » May 28th, 2021, 9:03 am

MDW1954 wrote:
stevensfo wrote:
Not forgetting that, although the CPI may be 1.5%, the RPI is now 2.9%

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

No idea which is the better measure, but I tend to stick to RPI for that margin of safety. i.e. I have to beat the RPI.

Also, CPI uses something called 'Hedonic regression' which, though not an expert, sounds like a bit of a fiddle factor, since it involves people's reaction to rising prices rather than the prices themselves.

Steve


The government is admittedly re-thinking its plans to scrap the RPI index -- a consultation is underway, whereas once it was a done deal.

To give you an economist's answer: CPI probably *is* the better measure, but RPI is written into huge numbers of legally-binding contracts as the inflation index that matters. So if they do scrap RPI, they'll probably have to come up with a supplementary CPI index that measures much the same thing. A bit like today's CPI-H measure, for instance.

Hedonic regression: I've never done any hedonic regressions (although plenty of other econometric modelling), but the basic idea isn't difficult. Compare the price of today's computers to those of the 1980s. As an example, the computer on which I'm typing these words cost less than the computer I bought in 1989. But it's infinitely more powerful: its RAM is largely than the hard drive of that computer.

That's the sort of thing that hedonic regression does.

MDW1954


Thanks for that! Though surely, that could be simply seen as the price of an average computer over time, rather than people's reaction to price increases in order to maintain their lifestyle (hedonic?). The example I always remember many, many years ago was something like:

Family like to eat salmon every Friday, pay 10 pounds from local fishmonger.
10% price increase. They buy from Waitrose, same price.
10% price increase. They buy from Tesco, same price.
10% price increase. They buy from Aldi, same price.
10% price increase. They buy from an Ebay seller based near Chernobyl in the Ukraine, same price. ;)

i.e. They still have their fish every Friday and pay the same, even during inflation, allowing some to argue that for that family, there is no inflation.

Apologies if I've completely misunderstood.

Steve

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Re: Is rising inflation looming?

#415861

Postby MDW1954 » May 28th, 2021, 3:11 pm

stevensfo wrote:
Thanks for that! Though surely, that could be simply seen as the price of an average computer over time, rather than people's reaction to price increases in order to maintain their lifestyle (hedonic?). The example I always remember many, many years ago was something like:

Family like to eat salmon every Friday, pay 10 pounds from local fishmonger.
10% price increase. They buy from Waitrose, same price.
10% price increase. They buy from Tesco, same price.
10% price increase. They buy from Aldi, same price.
10% price increase. They buy from an Ebay seller based near Chernobyl in the Ukraine, same price. ;)

i.e. They still have their fish every Friday and pay the same, even during inflation, allowing some to argue that for that family, there is no inflation.

Apologies if I've completely misunderstood.

Steve


And I'm afraid that I don't understand your example -- either it's a bit too cryptic, or I'm especially dim today.

But what you may be missing is the regression element. In other words, you've got a slope, and a coefficient, that enables predictions to be made. Strictly speaking, it's not cause-and-effect unless there is any theoretical underpinning for that, so it might be purely associative. But if you're happy with that, then you can make predictions that strip out the effects of the fact that over time, you're not comparing like with like.

I suppose the key message that I want to leave you with is that it's not a 'fudge factor', but a probably-sensible attempt to strip out noise. Statistics, alas, is full of such things: look at the way the actual basket of goods in the CPI/RPI basket changes over time -- collectively, we no longer buy cassette tapes, or rent videos, or buy pigs trotters for lunch.

MDW1954

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Re: Is rising inflation looming?

#419629

Postby GoSeigen » June 15th, 2021, 10:31 am

TheMotorcycleBoy wrote:Hi folks,

I'm definitely no economics expert [*], but is it possible that the easing currently being implemented combined with supply shortages will engender inflation over the next few months?

(Hmm. excepting decline in oil price (cost of energy), and fall in house purchases.

Matt

[*] Have started reading https://www.amazon.co.uk/Keynes-Keynesi ... 1848442394


If MCB or anyone else wants to understand the topic of money, inflation and government securities the following is an excellent read:

https://www.hussmanfunds.com/comment/mc210614/

John Hussman has an understanding of the plumbing of the financial system second to none. That doesn't necessarily make him a brilliant investor because reading market sentiment is another important and difficult aspect of investing, but if you need to know how things work under the bonnet, he's your man.

GS

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Re: Is rising inflation looming?

#419640

Postby 1nvest » June 15th, 2021, 11:31 am

GoSeigen wrote:
GoSeigen wrote:I'm not expecting a general rapid rise in long-term inflation yet, but rather short, very severe spikes in inflation -- pretty much for the reasons you've given.

[...]

One year on, and here it is. Will be interesting to see how high it goes.


Anyone who has any doubts that inflation is on its way back need only read the nonsense being written in the media these days, classic example here:

https://www.bloomberg.com/europe
The ECB needs to make sure the current market realignment does not get out of hand, especially when it has all the available tools to prevent it. In 2018, for example, the 10-year Italian yield jumped to 3.75% in October from 1.75% in May; a replay of that magnitude would be an epic disaster for the nation’s finances. Lagarde needs to swiftly display leadership akin to Draghi’s “whatever it takes” mantra.

Executive summary: it is the Central Banks' role to print money and buy government securities at ruinously high prices so that their fiscal incontinence will be obscured. This is a drastic change from post 2008 policy, which was to avert deflation by expanding money supply: this policy is to create the illusion that inflation need have no effect on bond yields -- the reductio ad absurdum in real life of MMT's loony idea that countries can print as much money as they like.

Be warned: all of us will pay for this in rising prices.

GS

:) France takes over the EU presidency next year and looks like they have some interesting objectives.

1. Transition over the EU's legal/primary language to French
2. Extend the asset purchase programme to print-n-buy up all assets. Having bought up most bonds, then junk bonds then some stocks ... why not just continue that to buy up all stocks and houses. Socialist France expanded to a socialist EU. :)

Be warned: all of us will pay for this in rising prices

... only if in depreciated currencies, for others it could mean cheaper prices. If your primary currency isn't one that can simply see more being printed/spent that benefits the counterfeiter at the expense of devaluation of all other notes in circulation, then your currency might see greater purchase power (lower prices). Old Money for instance, generational wealth, opt for a combination of land, art, gold "currency". Cash is just the short term conversion of one currency (land, art or gold) into the notes/coins that are just about to be used in exchange for something else (product/service), where typically its best to convert the one that has appreciated the most relative to 'cash'.

Personally not a fan or art, no eye for it, some I'd even throw out in the bin as having been painted by pre-school. Prefer stocks as a substitute. Similar to as advocated by the ancient Talmud millennia ago, land (home), commerce (stocks), reserves (gold). Waves and wanes but broadly tends to do OK.

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Re: Is rising inflation looming?

#419856

Postby Itsallaguess » June 16th, 2021, 8:27 am

From the BBC this morning -

UK inflation jumps to 2.1% in May as clothes and fuel prices rise -

UK inflation jumped to 2.1% in the year to May, as the opening up of the economy from lockdown sparked a rise in consumer spending.

The Consumer Prices Index measure of inflation rose from 1.5% in April, according to the Office for National Statistics, driven by the rising cost of fuel and clothing. Inflation is now at its highest since before the pandemic. That is likely to fuel a debate about whether interest rates should go up.

May's reading was above most economists' forecasts of an increase of about 1.8%, and means inflation is now above the Bank of England's 2% target.


Image

Source - https://www.bbc.co.uk/news/business-57490101

Cheers,

Itsallaguess

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Re: Is rising inflation looming?

#419860

Postby TheMotorcycleBoy » June 16th, 2021, 8:41 am

Personally I've been following the talking heads speil re. inflation and the movement of the US 10 yr. A month or so back this gave me a dip-buy opportunity for NVDA (Nvidia) a pricey tech stock I'd been following. However, despite that flutter, I'm certainty starting to exercise more caution in equity purchases.

The Fed have been recently pushing a narrative suggesting current inflation trend as being transitory. However several well known investors (Ackmann and Buffett)

https://www.youtube.com/watch?v=_PmqM8-987A
https://www.youtube.com/watch?v=7t7qfOyQdQA

seem dubious of the transitory claim.

Lacking a crystal ball, obviously I'm clueless as whether currently observed inflation will fizzle out or not. What intrigues me is whether the Fed have a reason for stating their transitory claim and what that would be. My attempt at rationalisation their position, would be to suggest that yes, prices are rising since (US) folks have received stimulus checks and hence are willing to spend, and similar UK folks were still being paid over the last year in a reasonably closed retail environment (mind you Amazon was still open ;) and are now in the reopened economy satisfying pent up demand with the furlough wages/stimulus cheque slush. That much is fairly obvious. However, surely for inflation to persist/increase wages must follow suit? But will they? I think it's quite possible that wages could grow at a lesser rate to price inflation, in which case the transitory narrative would appear to make some sense.

Matt

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Re: Is rising inflation looming?

#419876

Postby TheMotorcycleBoy » June 16th, 2021, 9:42 am

GoSeigen wrote:
TheMotorcycleBoy wrote:Hi folks,

I'm definitely no economics expert [*], but is it possible that the easing currently being implemented combined with supply shortages will engender inflation over the next few months?

(Hmm. excepting decline in oil price (cost of energy), and fall in house purchases.

Matt

[*] Have started reading https://www.amazon.co.uk/Keynes-Keynesi ... 1848442394


If MCB or anyone else wants to understand the topic of money, inflation and government securities the following is an excellent read:

https://www.hussmanfunds.com/comment/mc210614/

John Hussman has an understanding of the plumbing of the financial system second to none. That doesn't necessarily make him a brilliant investor because reading market sentiment is another important and difficult aspect of investing, but if you need to know how things work under the bonnet, he's your man.

GS

Thanks. It's an interesting slant on things and it's always good to receive as many views as is possible. This section is particularly saliant:

When one nets out all the assets and liabilities in the economy, the only thing left – the true basis of a society’s net worth – is the stock of real investment that it has accumulated as a result of prior saving, and its unused endowment of resources. Everything else cancels out because every security represents an asset of the holder and a liability of the issuer. Conceptualizing ‘saved or unconsumed resources’ as broadly as possible, the wealth of a nation consists of its stock of real private investment (e.g. housing, capital goods factories), real public investment (e.g. infrastructure), intangible intellectual capital (e.g. education, inventions, organizational knowledge and systems), and its endowment of basic resources such as land, energy, and water.

But, in my opinion, unless he states this later on, he fails to state something else equally relevant. That being that even a society's net worth is a figure which is determined by human emotions (and hence lacking an objective reality), perceptions of present and future value etc. etc.

Matt

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Re: Is rising inflation looming?

#419882

Postby Bubblesofearth » June 16th, 2021, 10:15 am

TheMotorcycleBoy wrote:
But, in my opinion, unless he states this later on, he fails to state something else equally relevant. That being that even a society's net worth is a figure which is determined by human emotions (and hence lacking an objective reality), perceptions of present and future value etc. etc.

Matt


Also, unless stated elsewhere, it ignores the importance of wealth distribution.

BoE

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Re: Is rising inflation looming?

#420845

Postby 1nvest » June 20th, 2021, 3:32 am

88V8 wrote:
Itsallaguess wrote:The UK inflation rate rose to 1.5% in the 12 months to April, up from 0.7% in March, official figures show.

And once again the market has taken a dive.
Govts want inflation. They need inflation to deflate their debt. So it will happen.
Just not like the 70s, I hope.
The only good thing about the 70s was hot pants.

V8

2008 UK debt was around £500Bn and costing around 5%/year to service.
Since then there's been 36% inflation so in inflation adjusted terms = 680Bn which at 5% = £34Bn/year interest payment cost in 2021 money (inflation adjusted) terms. More recently the debt is around £2.1T and costing 2%/year, but the BoE has printed £900Bn and in effect bought up a large chunk of that debt (older higher cost to service Gilts) and returns all interest paid on those gilts back to the treasury. So more like £1.2T debt costing 2% to service = £24Bn/year interest payment costs. The repayments (gilts maturing) occur over many years/decades, and as each matures so another might be issued (debt rolled) or repaid.

High inflation = higher interest rates = higher cost to roll Gilts is less desirable than if inflation/interest rates remain low, with mildly negative real yields.

As in how Covid/lockdown saw a dip in inflation/GDP, so coming out of Covid might see a peak in inflation/GDP, perhaps 4% before inflation drops back down to more around 2% BoE remit target level. And where interest rates also rise from current very low levels back to 2% type levels.

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Re: Is rising inflation looming?

#420885

Postby ursaminortaur » June 20th, 2021, 11:34 am

1nvest wrote:
88V8 wrote:
Itsallaguess wrote:The UK inflation rate rose to 1.5% in the 12 months to April, up from 0.7% in March, official figures show.

And once again the market has taken a dive.
Govts want inflation. They need inflation to deflate their debt. So it will happen.
Just not like the 70s, I hope.
The only good thing about the 70s was hot pants.

V8

2008 UK debt was around £500Bn and costing around 5%/year to service.
Since then there's been 36% inflation so in inflation adjusted terms = 680Bn which at 5% = £34Bn/year interest payment cost in 2021 money (inflation adjusted) terms. More recently the debt is around £2.1T and costing 2%/year, but the BoE has printed £900Bn and in effect bought up a large chunk of that debt (older higher cost to service Gilts) and returns all interest paid on those gilts back to the treasury. So more like £1.2T debt costing 2% to service = £24Bn/year interest payment costs. The repayments (gilts maturing) occur over many years/decades, and as each matures so another might be issued (debt rolled) or repaid.

High inflation = higher interest rates = higher cost to roll Gilts is less desirable than if inflation/interest rates remain low, with mildly negative real yields.

As in how Covid/lockdown saw a dip in inflation/GDP, so coming out of Covid might see a peak in inflation/GDP, perhaps 4% before inflation drops back down to more around 2% BoE remit target level. And where interest rates also rise from current very low levels back to 2% type levels.


Sorry, since the 2008 UK debt was mostly at fixed interest rates rather than indexed gilts the 36% inflation since then will have inflated the debt away rather than increased it in line with inflation. A large amount will also by now have been rolled over at much much lower interest rates (the governments since then have also been successfully replacing short term debt with longer term debt so even if interest rates were to rise in the near future it wouldn't affect the low interest rates being paid on that debt for quite sometime).


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