The Lemon Fool

NeilW wrote:

dealtn wrote:GEMMs, despite your claim, do not have the obligation to make markets and liquidity in all market conditions

GEMM Obligations
Firms endorsed by the DMO as GEMMs agree to meet a number of obligations on a continuous basis. The obligations are as follows:
A. Participation in primary issuance
1. GEMMs are expected to play an active role in the issuance, distribution and marketing of UK government debt.
2. GEMMs should aim to purchase at least 2.0% of issuance by sector – conventional and index-linked - on a 6-month rolling average basis.
3. GEMMs are expected to participate in every operation for which they are a designated market maker.
B. Market making
1. GEMMs are committed to make, on demand and in all conditions, continuous and effective two-way prices to their customers, in all gilts in which they are recognised as a market maker.
2. GEMMs must aim to achieve and maintain an individual secondary market share of at least 2.0% on a 6-month rolling average basis, in the sectors for which they are a designated market maker.

https://www.dmo.gov.uk/media/15088/guidebook160316.pdf

You need to read 3.1 Secondary Market Dealing, and in particular 96 and 97.

We can argue what "obligation" means in theory if you like. In practice GEMMs can and do meet that "obligation" by effectively declining to quote. All the GEMMs counterparties know what that means, which is our price will not be the most competitive, but you can have a price if you really need one.

All of which isn't particularly useful in this context, but if you wish, it means that market prices can change. Your argument appears to be that the FX market doesn't have market makers, which means prices are less continuous, and could move more in that volatility. In fact I am being generous to your argument, as my belief is that liquidity is greater, prices are more continuous, and less volatile in FX.

You can have whichever version of the truth you like though. We are agreeing that the relative price of £ against other currencies moves (as is clearly demonstrated by any kind of historical, or graphical representation of those relative prices).

So given we agree, and we are only at variance over the quantum of such moves, we should be able to agree that the prices of imports to a UK consumer are dependent on the FX rate, and changes in the FX rate will affect the price of those consumer goods. The measurement of those prices is the inflation basket, and changes to them the inflation rate.

So are you now prepared to agree that in an open economy where FX prices are not static, that changes in those exchange rates translate into changes in the consumer price, and inflation rate?

It seems very odd you can't take this small step from your own description of how markets work.

dealtn wrote:We can argue what "obligation" means in theory if you like.

I would read it as answering the phone and giving some form of price and/or making sure the computers are switched on.

dealtn wrote:We can argue what "obligation" means in theory if you like. In practice GEMMs can and do meet that "obligation" by effectively declining to quote. All the GEMMs counterparties know what that means, which is our price will not be the most competitive, but you can have a price if you really need one.

It's rather more than that in the "run for the exit situation" you are implying in the FX market. It means I can demand Gilts from you to cover my short positions, and you have to go find them - including getting the DMO to create some for you if necessary. And that makes you patsy in the market - or rather the DMO who is on the hook in extremis. The Gilt issuer takes the cold bath.

None of which applies in the FX market. When the liquidity providers take their balls home you are stuck. And if you are short at that point then you have a default problem and the shorter takes the cold bath, not the currency issuer.

Which systemically makes all the difference.

NeilW wrote:

dealtn wrote:We can argue what "obligation" means in theory if you like. In practice GEMMs can and do meet that "obligation" by effectively declining to quote. All the GEMMs counterparties know what that means, which is our price will not be the most competitive, but you can have a price if you really need one.

It's rather more than that in the "run for the exit situation" you are implying in the FX market. It means I can demand Gilts from you to cover my short positions, and you have to go find them - including getting the DMO to create some for you if necessary. And that makes you patsy in the market - or rather the DMO who is on the hook in extremis. The Gilt issuer takes the cold bath.

None of which applies in the FX market. When the liquidity providers take their balls home you are stuck. And if you are short at that point then you have a default problem and the shorter takes the cold bath, not the currency issuer.

Which systemically makes all the difference.

Interesting you think you have the upper hand over the market maker when you "demand" to cover your short position.

But whatever. None of which is relevant to inflation, which this thread is about. (Happy for you to start a new one on Gilt market making if that is of interest to you).

Do FX prices move? Does that mean import prices move? Does that affect the inflation calculation?

Yet again you refuse to engage? Are you Meatloaf in disguise trying to claim 2 out of 3 ain't bad?

NeilW wrote:It will stop since there will be a reduction in sales due to increased prices and no change in wages.

No change in wages? Sao you weren't alive in the 70s...... How soon we forget.

V8

88V8 wrote:No change in wages? Sao you weren't alive in the 70s...... How soon we forget.

V8

And the equivalence is what exactly? Where is the functional shortage coming from where there is an operational monopoly, no desire to implement rationing, rampant unions propping up failed operations or a government that still thought it was running under Bretton Woods?

Looks like you have forgot what actually happened, and turned it into a belief myth. Much as the Germans have with Weimar.

NeilW wrote:

88V8 wrote:No change in wages? Sao you weren't alive in the 70s...... How soon we forget.

V8

And the equivalence is what exactly? Where is the functional shortage coming from where there is an operational monopoly, no desire to implement rationing, rampant unions propping up failed operations or a government that still thought it was running under Bretton Woods?

Looks like you have forgot what actually happened, and turned it into a belief myth. Much as the Germans have with Weimar.

My only belief myth I have is that in 1978 when age 18 I started working as a barman (previous to that I washed/collected glasses for two years at 40p and hour so different role) I was paid 50p and hour , by 1984 when I left the job(moved to Aberdeen for my Post Grad) I was paid 75p an hour and the price of the pints I served had also risen roughly in step. (33p a pint in 1978 for Tartan Special 34p for McEwans Export, nip and a half 50p )

Energy price cap going up.

https://www.bbc.co.uk/news/business-55925514

Whilst this will impact measured inflation this factor alone will take some time to work its way into the annual rate. Most of the increase reverses a fall back in October.

More evidence of the potential for reported inflation to be rising. Oil prices now above pre-pandemic level, and significantly higher than the lows. Brent Crude >$60, having been <$40.

https://www.bbc.co.uk/news/business-55975700

Just in case anyone's paranoia needs another dose, have one re inflation
http://www.shadowstats.com/alternate_da ... ion-charts

YMMV
- dspp

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.

dspp wrote:YMMV

Indeed. Shadowstats are among the biggest charlatans on the internet IMO, along with QAnon, my wife's cousin flogging dodgy watches and all the crypto-coin peddlers.

For years shadowstats claimed inflation was 1% (maybe more) higher than official statistics without a shred of evidence. LOL, the DT even bought into their mythology and regularly published a "Real Inflation Index" or such like... then abruptly dropped it when it fell far below zero!!


GS

Yellen senses economy heating up:

U.S. interest rates may need to rise to prevent the economy from overheating as more of U.S. President Joe Biden’s economic investment programs come on line, U.S. Treasury Secretary Janet Yellen suggested in remarks released Tuesday.

“It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat, even though the additional spending is relatively small relative to the size of the economy,” she said in taped remarks to a virtual event put on by The Atlantic. “It could cause some very modest increases in interest rates to get that reallocation, but these are investments our economy needs to be competitive and to be productive (and) I think that our economy will grow faster because of them.”

from
https://www.reuters.com/article/us-usa- ... SKBN2CL1IY

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.

But continue to be under-stated so they can pay NHS less wages and reduce pension liabilities. Houses, goods/groceries etc. etc. all have exceeded the official rate of inflation and they even swap things around to rotate into a even lower rate (from RPI to CPI). I guess when that has all accumulated over decades to a massive difference that is when things 'blow up' and they correctly restate inflation after it having spiked well into double digits for a number of years and during which they increase basic rate taxes to 40% type levels (20% inflation, 20% cash deposit interest, 40% tax, -8% loss).

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

“Inflation fears have hurt market sentiment today, as European markets maintained the pessimistic tone established in the US yesterday,” said IG senior market analyst Joshua Mahony.

"An overnight jump in Chinese PPI data highlighted how commodity prices are lifting factory costs, with traders worried that input costs will feed into consumer prices which could result in a more hawkish central bank approach.”

Mahony said that, despite Fed chair Jerome Powell attempting to quell fears of an inflation-fuelled rate hike on a number of occasions, Tuesday’s selling pressure highlighted ongoing fears that a spike in prices could force the central bank’s hand.

Obviously analysts and journalists (and stockbrokers) don't know what is coming but I guess the USA and China will influence the answer to the OP's question. The markets seem a little more "jumpy" about this topic than they were recently.

regards

Howard

https://www.pilling.co.uk/home/profiles ... id=7922520

viewtopic.php?p=295513#p295513

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

MCB

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.

GS

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

GS

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.

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

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.