The Lemon Fool

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

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

Where's the demand?

I think more likely recession and we could indeed be looking at something equivalent to the failure of our banks in 2007/8.

Most of Europe was bumping along at extremely low growth rates. All must now be in some form of recessive trend as the number of people working has fallen. Nothing is really moving other than food stuffs and essential medical equipment. This is going to hurt

AiYn'U

AsleepInYorkshire 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

Where's the demand?

I guess it's *currently* reduced.

However ppl are still shopping. Purely anecdotal but...my wife works as a Sales Assistant at Screwfix. Folk are still shopping. They are doing it all online using Click'n'collect, since SF have (in adjusting to cv-19) modified their operating practice.

The view is that 100s of 1000s (millions even?) of Brits have had their salaries protected (by Rishi Sunak?), and many are going on home DIY sprees.

Food prices are destined to rise (they may even be already). So will vehicle parts, as warehouse carry less and less stock. And aren't prices "sticky" in general, i.e. once they've risen they tend to stay there.

I think more likely recession and we could indeed be looking at something equivalent to the failure of our banks in 2007/8.

Most of Europe was bumping along at extremely low growth rates. All must now be in some form of recessive trend as the number of people working has fallen. Nothing is really moving other than food stuffs and essential medical equipment. This is going to hurt

Sure, quite so.

thanks Matt

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

Depends what you count as inflation. Lots (and lots) of people losing their jobs should push prices down, not up. But taxes will go up a lot, if only to pay for a bigger NHS. I have already been seeing demands from surgeons and doctors for higher wages because they are now so special.

Nimrod103 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

Depends what you count as inflation. Lots (and lots) of people losing their jobs should push prices down, not up. But taxes will go up a lot, if only to pay for a bigger NHS. I have already been seeing demands from surgeons and doctors for higher wages because they are now so special.

My primary definition is a rise in prices of many consumer goods.

Examples of such being pasta, milk, toilet roll, DIY items, IT equipment. In the last case, I was looking for a mini jack headset (headphones + mic boom) two weeks ago since I'm now WFH. I was about to purchase it a few days back, but it and other moderately priced ones are now out of stock.

Vehicles: they are still being driven around. My mechanic friend, is now describing that it's almost impossible to get parts, due to factory closures. Presumably the last remaining will get marked up.

Furthermore many have had their existences bankrolled by our chancellor Rishi Sunak, now have zero childcare costs and reduced petrol bills, and many banks (mine has) have communicated a moratorium on overdraft interest.

My point is, by and large, many people have the same income, but a restricted supply of goods. Both supermarkets and the internet remain open. People are generally not going in to work, so they have more time to queue in supermarkets, and Amazon, plus other e-outlets are still ready to accept payment.

Matt

AsleepInYorkshire wrote:Where's the demand?

I guess my underlying point is that I don't see that consumer demand has changed radically. Obvious exceptions being in petrol, public transport and entertainment.

I appreciate that business demand will have fallen quite markedly.

Back to consumers. I see that many will spend less on transport costs, but more on heating costs, since people are staying at home and hence heating their houses more, whereas as previously they were being heated at work or in school (much more efficiently presumably?). I accept that these are possibly small shifts in expenditure.

Matt

Snorvey wrote:I've always seen public sector wage increases as a driver of inflation.

I really can't see that happening in the coming years....decades.

I'm not talking of 70s style (25%). What about 4-5% like around 2011?

https://www.rateinflation.com/inflation ... ation-rate

Snorvey wrote:I've always seen public sector wage increases as a driver of inflation.

Being allowed to increase prices and taxes by RPI or CPI is likely to have the effect of ensuring the continuation of inflation. I'm unconvinced why the inflation target cannot be zero. If it's stuff you need to consume, you cannot defer purchase because the price is likely to decrease.

A lot really depends upon how long the period of almost lockdown goes on for. I think the country will probably face difficulties relating to the gradual devaluation of sterling. That is likely to drive into prices. It does have the benefit that the economic pain caused by this process is essentially shared in proportion to people's wealth.

Because a similar problem is occurring in the rest of the northern hemisphere temperate zone it may not be that obvious, but it remains to be seen exactly what happens. It is not sustainable in the long term, but is sustainable in the really short term. Where the boundary lies is unclear.

Snorvey wrote:I've always seen public sector wage increases as a driver of inflation.

I really can't see that happening in the coming years....decades.

Don't you believe it. The unions will be out in force, with the medical unions leading the charge.

regards, dspp

johnhemming wrote:A lot really depends upon how long the period of almost lockdown goes on for. I think the country will probably face difficulties relating to the gradual devaluation of sterling. That is likely to drive into prices. It does have the benefit that the economic pain caused by this process is essentially shared in proportion to people's wealth.

Because a similar problem is occurring in the rest of the northern hemisphere temperate zone it may not be that obvious, but it remains to be seen exactly what happens. It is not sustainable in the long term, but is sustainable in the really short term. Where the boundary lies is unclear.

If, as it appears you are suggesting, the "similar problem is occurring in the rest of the Northern hemisphere..." why does that lead to a "gradual devaluation of sterling..."? That line of thinking suggests that others with the "similar problem" will have a gradual "revaluation", against sterling at least.

Alaric wrote:

Snorvey wrote:I've always seen public sector wage increases as a driver of inflation.

Being allowed to increase prices and taxes by RPI or CPI is likely to have the effect of ensuring the continuation of inflation. I'm unconvinced why the inflation target cannot be zero. If it's stuff you need to consume, you cannot defer purchase because the price is likely to decrease.

The accepted general view of economists is that you need inflation of about 2% to keep the economy moving and ensure people have some incentive to spend their money rather than sit on it. They only see the purpose of money as being to optimise what suits government and economic growth. Maintaining money as a stable store of value is not an objective that occurs to them as desirable. The fact that it seems the economies that have been most successful in the long term have been the ones with relative low inflation (Switzerland, Germany etc) escapes their attention.

Of course in this country we have found that a 'little' inflation usually ends up in a lot of inflation (reached 27% at one point in the seventies).

I think that higher inflation is quite likely to reassert itself, so may be better to keep one's cash in more reliable currencies?

scrumpyjack wrote:
I think that higher inflation is quite likely to reassert itself, so may be better to keep one's cash in more reliable currencies?

Are US stocks a long-term (say 15 years) compensation for higher (e.g. than the rest of the world) UK inflation and the long-term devaluation of the pound?

dealtn wrote:[That line of thinking suggests that others with the "similar problem" will have a gradual "revaluation", against sterling at least.

There are countries without lockdowns mainly in the Southern Hemisphere and outside the temperate zone.

johnhemming wrote:

dealtn wrote:[That line of thinking suggests that others with the "similar problem" will have a gradual "revaluation", against sterling at least.

There are countries without lockdowns mainly in the Southern Hemisphere and outside the temperate zone.

Ok, that line of argument is fine, as long as you accept that other Northern Hemisphere countries will also be seeing gradual devaluation etc. The majority of arguments (I have seen at least) seem to suggest that the UK will "suffer" in some relative sense, whether that is via the currency or otherwise, and of course that may well turn out to be the case. But the general sense of the arguments seem to be that GBP will devalue versus US or EUR, yet our response, and outcomes to the epidemic don't appear to be out of line with others. Hence better arguments are required to explain why that will be the case.

The UK historically has had higher rates of inflation than other northern hemisphere countries. If people generally expect inflation, the expectation becomes self fulfilling. Whether that expectation is more firmly entrenched in our national psyche (if there is such a thing), I'm not sure but I suspect it is, even though we have had relatively low inflation for a long time.

If this emergency lasts weeks or at most a few months, it is not likely to have any big effects - it's not like the 6 years of WW2. And I find it hard to see how the UK will be less well placed, and more prone to inflation than other European countries.

However, there will be casualties in the hospitality sector, restaurants etc. Who will want to go cruising in the next few years, or take a holiday in a distant part of the World? The longer it goes on, more people will get used to shopping online.

The interesting thing is whether there are effects on global trade, global travel generally, and whether Communist China is treated as a pariah. IMHO China will not recognize its responsibility for this, because of Oriental saving face.

Edit to add - there could be quite a few changes to human psychology and behaviour. I read online that A&E depts are relatively empty as people decide to stay home with their trivial complaints.

dealtn wrote: Hence better arguments are required to explain why that will be the case.

There are, in fact, two aspects of economic challenge. Those that relate to the direct actions taken by this country and those which arise from the global position. It is sensible for the government to take action to protect the economy from both of those aspects.

The government will probably have to expand the range of businesses that can get government underwritten loans as the current rules may be too tight and even though lower paid staff can be furloughed at 80% of their salary without the business having to contribute other than administratively there will be quite a bit of fixed costs for which funds can be borrowed, but which will require repayment at some stage.

Nimrod103 wrote:it's not like the 6 years of WW2.

The economic challenge could in fact be greater because things have basically stopped to some extent.

That's the theory and I would expect it to have some truth. However, the ease by which this is done depends quite substantially on how quickly the attempts to restart are made. Furthermore it will take some time to get things actually restarted so that they can function without state support.