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RPI to 6% !

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gryffron
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Re: RPI to 6% !

#470052

Postby gryffron » January 4th, 2022, 12:03 am

westmoreland9 wrote: shipping costs are up about 8-9 fold on the pre pandemic levels which will feed through to the price of every import.

I accept your point. Though it is hard to see why that should be the case. Surely overall volumes are still lower now than pre-pandemic. I know the troughs and slumps in both production and demand have seen a lot of ships and containers in the wrong place. But why is that a long term issue? I understand forward booked shipping prices remain extremely high. But why? There’s no ultimate shortage of capacity. Is this not just panic buying of shipping capacity by producers in exactly the same way that created the petrol “crisis”.

Gryff

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Re: RPI to 6% !

#470233

Postby BT63 » January 4th, 2022, 4:45 pm

gryffron wrote: I understand forward booked shipping prices remain extremely high. But why?


Baltic dry freight index has been trending strongly lower in the last few months:
https://schrts.co/NiZtkppp

Down more than half compared to the autumn.
Maybe the shipping cost trend has run its course. Maybe the market smells a slowdown due to the possible beginning of interest rate increases and the end of quantitative easing.

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Re: RPI to 6% !

#470284

Postby westmoreland9 » January 4th, 2022, 8:13 pm

gryffron wrote:
westmoreland9 wrote: shipping costs are up about 8-9 fold on the pre pandemic levels which will feed through to the price of every import.

I accept your point. Though it is hard to see why that should be the case. Surely overall volumes are still lower now than pre-pandemic. I know the troughs and slumps in both production and demand have seen a lot of ships and containers in the wrong place. But why is that a long term issue? I understand forward booked shipping prices remain extremely high. But why? There’s no ultimate shortage of capacity. Is this not just panic buying of shipping capacity by producers in exactly the same way that created the petrol “crisis”.

Gryff


consolidation in the industry means they are much better at matching supply with demand for their own benefit: https://www.scmr.com/article/consolidat ... rriers_bot

fuel's obviously up, that's a big cost for them. imports to the UK from china are up 66% on 2018 levels (1st quarter). china has been busily manufacturing away whilst the rest of the world has scaled back during this pandemic.

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Re: RPI to 6% !

#474284

Postby stevensfo » January 19th, 2022, 7:42 am

Figures released today:

RPI 7.5%

CPI 5.4%

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

Steve

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Re: RPI to 6% !

#474360

Postby 88V8 » January 19th, 2022, 10:37 am

If a wage spiral starts, we could be in double-digits.... BoE will not want to raise rates as that will drive up govt borrowing costs leading to higher taxes... one big difference from the 70s is that the mass-labour unions are no longer in a position to lead wage inflation, but that is about the only positive at the mo.

V8

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Re: RPI to 6% !

#474424

Postby dealtn » January 19th, 2022, 12:59 pm

88V8 wrote:.... BoE will not want to raise rates as that will drive up govt borrowing costs leading to higher taxes...


The MPC (not the BoE) make decisions on interest rates, and are independent from the Government. They are well aware of the consequences of their interest rate decisions, which in themselves aren't the determining factor in Gilt yields (indeed raising short term policy rate often leads to lower long term rates in the Gilt market).

I have met a number of members of the MPC over the years, some whilst in that role, some before and some after. None ever struck me as anything other than independent or concerned about the implications for the Government in respect of Monetary Policy decisions.

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Re: RPI to 6% !

#474444

Postby vand » January 19th, 2022, 1:43 pm

We are now seeing a squeeze in living standards as wages fail to keep up with inflation. This is why inflation has always been historically destructive to the middle classes.

I personally feel that the world is being incredibly naive about the desire for governments and banks to tame inflation. Inflation is a part of the plan, except that its the one part they can't openly admit to. They will happily run deeply negative real interest rates and let inflation run wild in order to inflate the national debt down to more manageable levels, while talking about being "tough on inflation".

Real wages will continue to be squeezed, and bond holders are going to get well and truly shafted.

Personally I have very little faith that inflation is going to be taken seriously enough until we have social discontent on a scale where the fear of raising materially interest rates to fight inflation is considerably less than the fear of dealing with the social and economic consequences of continuing to let high inflation go on.

It's amazing how relevant this video vy Milton Friedman still is today, 40 years later.
Even back then we understood the causes of inflation and how to cure it. It was only ever a question of political expediency that was never kept in check as it should have been.

https://youtu.be/jE7zxo61Xc8

The video may seem dated when Friedman starts talking about the "price controls" that existed in that era and how they contribute to inflation.. whereas today we allow the market to work more freely. EXCEPT that it is perhaps even more relevant today as we have now moved on from wage and price ceilings, to a mass price control experiment where we go to extraordinary lenghths to control the single most important commodity in the economy - the price of money!!

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Re: RPI to 6% !

#474473

Postby stevensfo » January 19th, 2022, 3:08 pm

vand wrote:We are now seeing a squeeze in living standards as wages fail to keep up with inflation. This is why inflation has always been historically destructive to the middle classes.

I personally feel that the world is being incredibly naive about the desire for governments and banks to tame inflation. Inflation is a part of the plan, except that its the one part they can't openly admit to. They will happily run deeply negative real interest rates and let inflation run wild in order to inflate the national debt down to more manageable levels, while talking about being "tough on inflation".

Real wages will continue to be squeezed, and bond holders are going to get well and truly shafted.

Personally I have very little faith that inflation is going to be taken seriously enough until we have social discontent on a scale where the fear of raising materially interest rates to fight inflation is considerably less than the fear of dealing with the social and economic consequences of continuing to let high inflation go on.

It's amazing how relevant this video vy Milton Friedman still is today, 40 years later.
Even back then we understood the causes of inflation and how to cure it. It was only ever a question of political expediency that was never kept in check as it should have been.

https://youtu.be/jE7zxo61Xc8

The video may seem dated when Friedman starts talking about the "price controls" that existed in that era and how they contribute to inflation.. whereas today we allow the market to work more freely. EXCEPT that it is perhaps even more relevant today as we have now moved on from wage and price ceilings, to a mass price control experiment where we go to extraordinary lenghths to control the single most important commodity in the economy - the price of money!!


According to Wikipedia and other sites, this is called 'Financial Repression'. https://www.investopedia.com/terms/f/fi ... ession.asp

So you keep interest rates low while allowing inflation to increase, thus inflating away the national debt.

I guess that the secret is in getting the balance right. The 1970s with just-affordable housing and council houses is perhaps different from today where the average house price is ridiculous, London property owned by Greek, Russian, Offshore companies and the average salary:average house price ratio has become ludicrous and a total joke.

Back in the 1990s, all the teachers, nurses, Research Scientists (me) I knew were only able to survive cos their other half had a higher-paying job. The next few years are going to be interesting.


Steve

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Re: RPI to 6% !

#474574

Postby ADrunkenMarcus » January 19th, 2022, 8:50 pm

stevensfo wrote:So you keep interest rates low while allowing inflation to increase, thus inflating away the national debt.


We'll all lose in some ways from inflation but gain in others.

I fixed my mortgage for five years in September 2021 and the rate of 1.2 percent is far below inflation, so it is also inflating away my mortgage balance. :) On the other hand, my wages are increasing way below inflation! :(

Best wishes


Mark.

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Re: RPI to 6% !

#474682

Postby 88V8 » January 20th, 2022, 10:41 am

ADrunkenMarcus wrote:...it is also inflating away my mortgage balance. :) On the other hand, my wages are increasing way below inflation! :(

That's a good point. We took out our mortgage in 1974, and although the interest rate of 15% (fifteen percent) was painful, galloping inflation eventually trivialised the capital value.

dealtn wrote:
88V8 wrote:.... BoE will not want to raise rates as that will drive up govt borrowing costs leading to higher taxes...

I have met a number of members of the MPC over the years, some whilst in that role, some before and some after. None ever struck me as anything other than independent or concerned about the implications for the Government in respect of Monetary Policy decisions.

That's good to hear. I'm always suspicious about back-room discussions. And as regards independence, the govt granted, and if it becomes an irritant the govt can taketh away.

V8

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Re: RPI to 6% !

#474683

Postby dealtn » January 20th, 2022, 10:44 am

88V8 wrote:
dealtn wrote:
88V8 wrote:.... BoE will not want to raise rates as that will drive up govt borrowing costs leading to higher taxes...

I have met a number of members of the MPC over the years, some whilst in that role, some before and some after. None ever struck me as anything other than independent or concerned about the implications for the Government in respect of Monetary Policy decisions.

That's good to hear. I'm always suspicious about back-room discussions. And as regards independence, the govt granted, and if it becomes an irritant the govt can taketh away.

V8


If the intention is to limit the cost of paying interest on Gilts might I suggest that the very act of removing that independence is likely to add significantly to the yields on Gilts. How do you think it leads to a reduced interest burden?

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Re: RPI to 6% !

#474764

Postby 88V8 » January 20th, 2022, 2:50 pm

dealtn wrote:If the intention is to limit the cost of paying interest on Gilts might I suggest that the very act of removing that independence is likely to add significantly to the yields on Gilts. How do you think it leads to a reduced interest burden?

It depends how much short and long debt we have.
All the talk is of rates rises increasing the cost of govt debt service.

V8

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Re: RPI to 6% !

#480877

Postby stevensfo » February 16th, 2022, 8:24 am

Latest inflation figures released today:

CPI 5.5%

RPI 7.8%

I don't know if it's a glimmer of a slowdown, but the actual CPI index is slightly down on last month and the RPI index is the same.

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


Steve

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Re: RPI to 6% !

#480890

Postby mike » February 16th, 2022, 9:06 am

stevensfo wrote:I don't know if it's a glimmer of a slowdown, but the actual CPI index is slightly down on last month and the RPI index is the same.


Unfortunately, not that a bright glimmer.

The last time either the CPI or RPI index figure was greater in January than the prior December was January 2011, when they were both higher.

(from my own records taken from the ons site over the years)

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Re: RPI to 6% !

#480893

Postby ADrunkenMarcus » February 16th, 2022, 9:14 am

It appears the UK will have to pay £11 billion more on debt servicing due to the inflation rate, compared to October 2021 forecasts. I guess the flipside is we are inflating away our debts in that they will be less in real terms!

Best wishes


Mark.

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Re: RPI to 6% !

#480928

Postby anon155742 » February 16th, 2022, 11:31 am

Combined with the April 2021 increases, these latest rises resulted in 12-month inflation rates of 18.8% for electricity and 28.1% for gas in October 2021. In January 2022 these rates increased slightly to 19.2% for electricity and 28.3% for gas, although the overall contribution from electricity, gas and other fuels was unchanged at 0.59 percentage points. The increase in the rates for electricity and gas was because of changing energy prices in Northern Ireland, which is regulated separately from the rest of the UK and is not subject to the Ofgem price cap.

https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/january2022

This suggests that rises are still to come as the price cap rachets upwards

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Re: RPI to 6% !

#480942

Postby vand » February 16th, 2022, 12:18 pm

The increasing spread between the RPI and CPI is beginning to smell a bit fishy, but not at all surprising. There's a reason they changed the official measure, after all.

Remember that last time "inflation" was 8% in 1992 we were all officially using the RPI calculation.

The real tragedy of inflation is that real wages are being squeezed for those who can least afford it. Personally, although I don't expect my pay to keep up with inflation while it is so high, I have a high savings rate and can easily absorb the higher living costs.

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Re: RPI to 6% !

#480972

Postby MDW1954 » February 16th, 2022, 2:15 pm

vand wrote:The increasing spread between the RPI and CPI is beginning to smell a bit fishy, but not at all surprising. There's a reason they changed the official measure, after all.


There's a perfectly simple explanation:

The CPI calculates the average price increase as a percentage for a basket of 700 different goods and services. Around the middle of each month it collects information on prices of these commodities from 120,000 different retailing outlets. Note that unlike the RPI, the CPI takes the geometric mean of prices to aggregate items at the lowest levels, instead of the arithmetic mean. This means that the CPI will generally be lower than the RPI. The rationale is that this accounts for the fact that consumers will buy less of something if its price goes up, and more if its price goes down; it also ensures that if prices go up and then revert to the previous level, the CPI also reverts to its previous level (which is not the case with the calculation method used for the RPI). According to the ONS, this difference in averaging method is the largest contributing factor to the differences between the RPI and the CPI.[4]


Source: https://en.wikipedia.org/wiki/Consumer_ ... ed_Kingdom)

As prices are going up faster, CPI's use of the geometric mean serves to widen the gap between CPI and RPI.

MDW1954

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Re: RPI to 6% !

#480982

Postby stevensfo » February 16th, 2022, 2:52 pm

MDW1954 wrote:
vand wrote:The increasing spread between the RPI and CPI is beginning to smell a bit fishy, but not at all surprising. There's a reason they changed the official measure, after all.


There's a perfectly simple explanation:

The CPI calculates the average price increase as a percentage for a basket of 700 different goods and services. Around the middle of each month it collects information on prices of these commodities from 120,000 different retailing outlets. Note that unlike the RPI, the CPI takes the geometric mean of prices to aggregate items at the lowest levels, instead of the arithmetic mean. This means that the CPI will generally be lower than the RPI. The rationale is that this accounts for the fact that consumers will buy less of something if its price goes up, and more if its price goes down; it also ensures that if prices go up and then revert to the previous level, the CPI also reverts to its previous level (which is not the case with the calculation method used for the RPI). According to the ONS, this difference in averaging method is the largest contributing factor to the differences between the RPI and the CPI.[4]


Source: https://en.wikipedia.org/wiki/Consumer_ ... ed_Kingdom)

As prices are going up faster, CPI's use of the geometric mean serves to widen the gap between CPI and RPI.

MDW1954


The rationale is that this accounts for the fact that consumers will buy less of something if its price goes up, and more if its price goes down;

This is something that I've never quite understood, since it seems to me that the CPI is also taking into account people's reaction to price increases, rather than just price increases themselves, and thus adding an additional layer of calculations.

So if all food goes up 1000%, nobody can afford to buy any, but since they aren't buying any food (and starving to death), inflation would be 0%? 8-)

Steve

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Re: RPI to 6% !

#480983

Postby vand » February 16th, 2022, 2:55 pm

MDW1954 wrote:
vand wrote:The increasing spread between the RPI and CPI is beginning to smell a bit fishy, but not at all surprising. There's a reason they changed the official measure, after all.


There's a perfectly simple explanation:

The CPI calculates the average price increase as a percentage for a basket of 700 different goods and services. Around the middle of each month it collects information on prices of these commodities from 120,000 different retailing outlets. Note that unlike the RPI, the CPI takes the geometric mean of prices to aggregate items at the lowest levels, instead of the arithmetic mean. This means that the CPI will generally be lower than the RPI. The rationale is that this accounts for the fact that consumers will buy less of something if its price goes up, and more if its price goes down; it also ensures that if prices go up and then revert to the previous level, the CPI also reverts to its previous level (which is not the case with the calculation method used for the RPI). According to the ONS, this difference in averaging method is the largest contributing factor to the differences between the RPI and the CPI.[4]


Source: https://en.wikipedia.org/wiki/Consumer_ ... ed_Kingdom)

As prices are going up faster, CPI's use of the geometric mean serves to widen the gap between CPI and RPI.

MDW1954


While this may explain the increasing spread, you then have to question altogether if CPI is fit for purpose during times of higher inflation.. after all, the stuff that is going up the most like food, petrol and utilities don't have easy substitutes.


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