Inflation

[1nvest]

Borrow to burn Sunak now has the UK Gilt redemption debt standing at near £4 trillion. £2.9 trillion conventional gilts, £1 trillion Index Linked Gilts.

LT/KK were ousted due to borrowing to lower taxes (in order to attract/expand/multiply the 1% that pay 33% of the tax take) ... to instead borrow to lower National Insurance as under Sunak/Hunt, but where they're also driving the 1% away (meaning the rest will have to pay 50% more in taxes just to fill that hole).

The sooner Sunak is ejected the better, a very sad day when Labour offer the better prospect of managing the economy/treasury. But we are where we are, after all Sunak was democratically elected/selected

The Tories being branded with "can't be trusted with the economy" is a crown now firmly glued in place, that took Labour over 50 years to get unstuck.

[tjh290633]

Here are the correct figures for the increase in CPI since May 2023:

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%
2024 03   133.0                1.29%
2024 04   133.5                1.68%

TJH

[vand]

Yes... annualised number should fall next month too, may even print with a 1.x handle.

[GoSeigen]

an annualised rate of 7.8%
[...]

This month the index has risen by 0.5 since March**, by 1.5 since Octobér and by 2.2 since May last year. That's about 1.6% over 11 months. You are doing the calculation incorrectly.

An annualised rate. You are reading incorrectly.


GS
EDIT: To be clear, an annualised rate is one calculated as if the trend in question were to continue for 12 months, i.e. it's an extrapolation, of exactly the same form as TJH's back in March ["inflation will be below 2% in May's figure"]

(**)PPS: For the benefit of TJH: yes, and if the index continues to rise by 0.7 per month (as it has since Jan) then after a year has passed then the total rise will be 8.4 and inflation will turn out to have been 7.8% give or take.

[GoSeigen]

7.8% give or take

Actually 6.2%: for some strange reason I'd used 134 as the April figure (instead of the correct 133.5) which extrapolated to 7.8%.

This is all at the risk of losing the main point which is that the BoE do not base their rate decisions on amateur extrapolations of the latest few months of inflation. In actual fact I think they would be acutely aware of the few months of steady CPI index and how it looks to the layman, but they have to look through this sort of short-term noise and try to determine what is actually happening in the rates markets, in the banking system, in the consumer supply-and-demand situation and the strength of the economy -- and their longer-term effects on inflation. That is very difficult in the wake of two impulsive shocks: the supply and demand shocks of COVID and the supply chain, sanctions and energy shock of the 2022 Russian war escalation.

The fact is that when you look through those shocks the underlying economic trend is strong. Recovery has been in progress for some six years now, with the underlying trend in rates steadily upward, to the current point where short yields and money rates are above 4% in the UK and USA, yet the economy is still motoring. With inflation still running above target and looking hottish in the short term I think rates may remain high.

It also bears repeating what I've said before: rates only tend to come down when everyone finally expects them to keep rising. Of course this is not iron-clad but I think it is important to bear in mind before jumping on the "interest rates must drop" bandwagon.


GS

[Nimrod103]

7.8% give or take

Actually 6.2%: for some strange reason I'd used 134 as the April figure (instead of the correct 133.5) which extrapolated to 7.8%.

This is all at the risk of losing the main point which is that the BoE do not base their rate decisions on amateur extrapolations of the latest few months of inflation. In actual fact I think they would be acutely aware of the few months of steady CPI index and how it looks to the layman, but they have to look through this sort of short-term noise and try to determine what is actually happening in the rates markets, in the banking system, in the consumer supply-and-demand situation and the strength of the economy -- and their longer-term effects on inflation. That is very difficult in the wake of two impulsive shocks: the supply and demand shocks of COVID and the supply chain, sanctions and energy shock of the 2022 Russian war escalation.

The fact is that when you look through those shocks the underlying economic trend is strong. Recovery has been in progress for some six years now, with the underlying trend in rates steadily upward, to the current point where short yields and money rates are above 4% in the UK and USA, yet the economy is still motoring. With inflation still running above target and looking hottish in the short term I think rates may remain high.

It also bears repeating what I've said before: rates only tend to come down when everyone finally expects them to keep rising. Of course this is not iron-clad but I think it is important to bear in mind before jumping on the "interest rates must drop" bandwagon.


GS

I would broadly agree, and if the economy was on an upward trend since 2018, the BoE were very tardy in raising rates from emergency levels, as they made no increase in 2018 nor 2019 before the chaos of Covid struck. Because they were so far behind the curve, inflation has proved so sticky coming down.
I note the April services cpi is 5.9% - for God's sake, this is 3 times where it should be, and is an indication of how sclerotic the services dominated UK economy still is, how lacking in dynamism, productivity and competition.
But I suspect the sticky inflation is also self inflicted because so many government determined benefits and state wages have effectively been topped up to protect their recipients from inflation, so the pain is born by a narrow group of those who have not been so rewarded.

[AndrewInDevon]

Fascinating insight on inflation and the impotency of interest rates to control,it….

https://www.woodfordviews.com/post/uk-inflation-who-is-in-charge

[GoSeigen]

Fascinating insight on inflation and the impotency of interest rates to control,it….

https://www.woodfordviews.com/post/uk-inflation-who-is-in-charge

Well some of us have been talking about the death of monetarism for more than a decade... nice to see the author has caught up. However his article is so myopic and blinkered that it is scary. It appears to be a comment on the entire economy based on two numbers £15bn and £3.8bn which amount to a mere 0.6% of GDP and 0.15% respectively of UK GDP. This is without even thinking about asset values and their variation (which help drive the so-called feel-good factor).

Like I say if this is his idea of macroeconomic commentary I hope he doesn't manage people's money or anything like that!

GS