The Lemon Fool

So now we have an inflation thread in the Snug.... https://www.lemonfool.co.uk/viewtopic.php?f=29&t=31330
Thread inflation...

If the market thought inflation was now baked in, I would expect to see a downturn in Prefs prices, but I don't. Well, maybe a penny.
My jury's out.

V8

And a CaN-like inflation thread in Macro Topics https://www.lemonfool.co.uk/viewtopic.php?f=76&t=29460&start=60.

Keep up at the back now

V8

"Clearest hint yet..."

https://www.bbc.co.uk/news/business-58951983

MPC concerns about inflation and the likelihood of an adjustment to the policy rate.

Have to say the prospect of inflation is scaring me. Everyone is talking about it now. I've spent the past couple of hours going through all the last months announcements for several of our holdings, and a fair few are mentioning their businesses being hit by rising costs. And this entreprenuial superstar is now sounding the alarm:

Twitter co-founder Jack Dorsey weighed in on escalating inflation in the U.S., saying things are going to get considerably worse.

“Hyperinflation is going to change everything,” Dorsey tweeted Friday night. “It’s happening.”

The tweet comes with consumer price inflation running near a 30-year high in the U.S. and growing concern that the problem could be worse that policymakers have anticipated.

On Friday, Federal Reserve Chairman Jerome Powell acknowledged that inflation pressures “are likely to last longer than previously expected,” noting that they could run “well into next year.” The central bank leader added that he expects the Fed soon to begin pulling back on the extraordinary measures it has provided to help the economy that critics say have stoked the inflation run.

In addition to overseeing a social media platform that has 206 million active daily users, Dorsey is a strong bitcoin advocate. He has said that Square, the debit and credit card processing platform that Dorsey co-founded, is looking at getting into mining the cryptocurrency. Square also owns some bitcoin and facilitates trading in it.

Responding to user comments, Dorsey added Friday that he sees the inflation problem escalating around the globe. “It will happen in the US soon, and so the world,” he tweeted. Dorsey is currently both the CEO of Twitter and Square.
It’s one thing to call for faster inflation, but it may be surprising to some that Dorsey used the word hyperinflation, a condition of rapidly rising prices that can ruin currencies and bring down whole economies.

Billionaire investor Paul Tudor Jones and others have called for a period of rising inflation. Jones told CNBC earlier in the week that he owns some bitcoin and sees it as a good inflation hedge.

“Clearly, there’s a place for crypto. Clearly, it’s winning the race against gold at the moment,” Jones said Wednesday.

But most of the major investors have not gone so far as to call for hyperinflation like Dorsey.

https://www.cnbc.com/2021/10/23/twitter ... world.html

TheMotorcycleBoy wrote:Have to say the prospect of inflation is scaring me. Everyone is talking about it now. I've spent the past couple of hours going through all the last months announcements for several of our holdings, and a fair few are mentioning their businesses being hit by rising costs. And this entreprenuial superstar is now sounding the alarm:

Twitter co-founder Jack Dorsey weighed in on escalating inflation in the U.S., saying things are going to get considerably worse.

“Hyperinflation is going to change everything,” Dorsey tweeted Friday night. “It’s happening.”

Then he sounds to me as though he hasn't any idea what he is talking about! Inflation isn't "Hyperinflation".

https://en.wikipedia.org/wiki/Hyperinflation#Definition

Hyperinflation isn't "happening".

In addition to overseeing a social media platform that has 206 million active daily users, Dorsey is a strong bitcoin advocate. He has said that Square, the debit and credit card processing platform that Dorsey co-founded, is looking at getting into mining the cryptocurrency. Square also owns some bitcoin and facilitates trading in it.

Talking his own book?

It seems clear to me, from the budget, that inflation is a crucial part of Rishi's plan for tackling the deficit. Talking up pay and substantially increasing public expenditure can only lead to more inflation. No doubt he thinks he can manage it hold it at 5% for a couple of years and then bring it back to 2%.

That is a very dangerous strategy IMO, because once people get used to inflation they build it into their expectations and the cat cannot be put back into the bag without a lot of pain. Politicians then defer the pain and kick the can down the road.

Reminds me of St Augustine's well known prayer. 'Oh Lord, give me chastity. But not yet'

I think I will reconsider my portfolio because I am rather overweight cash. If inflation goes up and stays up, that is not good. Also Sterling is likely to depreciate against other currencies. Other effects will probably be higher interest rates (helping bank shares, harming mortgages and so builders, gilt prices falling etc etc)

Anyway those are just my initial thoughts, apart from great relief that he has not done any of the things recommended by the Office for Tax Complication.

scrumpyjack wrote:It seems clear to me, from the budget, that inflation is a crucial part of Rishi's plan for tackling the deficit. Talking up pay and substantially increasing public expenditure can only lead to more inflation. No doubt he thinks he can manage it hold it at 5% for a couple of years and then bring it back to 2%.

That is a very dangerous strategy IMO, because once people get used to inflation they build it into their expectations and the cat cannot be put back into the bag without a lot of pain. Politicians then defer the pain and kick the can down the road.

Reminds me of St Augustine's well known prayer. 'Oh Lord, give me chastity. But not yet'

I think I will reconsider my portfolio because I am rather overweight cash. If inflation goes up and stays up, that is not good. Also Sterling is likely to depreciate against other currencies. Other effects will probably be higher interest rates (helping bank shares, harming mortgages and so builders, gilt prices falling etc etc)

Anyway those are just my initial thoughts, apart from great relief that he has not done any of the things recommended by the Office for Tax Complication.

I can see where you are coming from, but it can also be argued that inflation can be impossible to engineer if the conditions are not conducive. If consumers refuse to spend, the price rises won’t stick. If pensioners cut back on spending because they are essentially on fixed incomes, and young families have high childcare costs, and net zero requires money to go out on EV’s and ASHP’s, how is the higher spending on inflated goods going to be financed?

Nimrod103 wrote:how is the higher spending on inflated goods going to be financed?

Increased fiscal and industrial spending I would guess

Nimrod103 wrote:

scrumpyjack wrote:It seems clear to me, from the budget, that inflation is a crucial part of Rishi's plan for tackling the deficit. Talking up pay and substantially increasing public expenditure can only lead to more inflation. No doubt he thinks he can manage it hold it at 5% for a couple of years and then bring it back to 2%.

That is a very dangerous strategy IMO, because once people get used to inflation they build it into their expectations and the cat cannot be put back into the bag without a lot of pain. Politicians then defer the pain and kick the can down the road.

Reminds me of St Augustine's well known prayer. 'Oh Lord, give me chastity. But not yet'

I think I will reconsider my portfolio because I am rather overweight cash. If inflation goes up and stays up, that is not good. Also Sterling is likely to depreciate against other currencies. Other effects will probably be higher interest rates (helping bank shares, harming mortgages and so builders, gilt prices falling etc etc)

Anyway those are just my initial thoughts, apart from great relief that he has not done any of the things recommended by the Office for Tax Complication.

I can see where you are coming from, but it can also be argued that inflation can be impossible to engineer if the conditions are not conducive. If consumers refuse to spend, the price rises won’t stick. If pensioners cut back on spending because they are essentially on fixed incomes, and young families have high childcare costs, and net zero requires money to go out on EV’s and ASHP’s, how is the higher spending on inflated goods going to be financed?

State pensions even before the triple lock went up by Inflation and DB pensions legally have to rise by at least LPI (for pensions built up between 1997 and 2005 that is inflation capped at 5% and for those built up since then inflation capped at 2.5%).
So those pensioners aren't quite on fixed incomes.

For those in employment the increased costs would likely lead to wage inflation which we are already seeing in certain areas.

ursaminortaur wrote:

Nimrod103 wrote:

scrumpyjack wrote:It seems clear to me, from the budget, that inflation is a crucial part of Rishi's plan for tackling the deficit. Talking up pay and substantially increasing public expenditure can only lead to more inflation. No doubt he thinks he can manage it hold it at 5% for a couple of years and then bring it back to 2%.

That is a very dangerous strategy IMO, because once people get used to inflation they build it into their expectations and the cat cannot be put back into the bag without a lot of pain. Politicians then defer the pain and kick the can down the road.

Reminds me of St Augustine's well known prayer. 'Oh Lord, give me chastity. But not yet'

I think I will reconsider my portfolio because I am rather overweight cash. If inflation goes up and stays up, that is not good. Also Sterling is likely to depreciate against other currencies. Other effects will probably be higher interest rates (helping bank shares, harming mortgages and so builders, gilt prices falling etc etc)

Anyway those are just my initial thoughts, apart from great relief that he has not done any of the things recommended by the Office for Tax Complication.

I can see where you are coming from, but it can also be argued that inflation can be impossible to engineer if the conditions are not conducive. If consumers refuse to spend, the price rises won’t stick. If pensioners cut back on spending because they are essentially on fixed incomes, and young families have high childcare costs, and net zero requires money to go out on EV’s and ASHP’s, how is the higher spending on inflated goods going to be financed?

State pensions even before the triple lock went up by Inflation and DB pensions legally have to rise by at least LPI (for pensions built up between 1997 and 2005 that is inflation capped at 5% and for those built up since then inflation capped at 2.5%).
So those pensioners aren't quite on fixed incomes.

For those in employment the increased costs would likely lead to wage inflation which we are already seeing in certain areas.

In the case of pensioners, I would be interested in knowing how much pension income (paid at present) is in the form of fixed rate annuities. I agree that other forms of pension will be uprated with inflation up to c.5%.

I was analyzing my own situation regarding inflation. My pensions will be uprated, and like other consumers, I have saved rather than spent during the pandemic, so I should be well placed to continue buying even if inflation rises sharply. However, in my town there are now newly opened Aldia nd Lidl stores, which have kept the lid on inflation in food and other basics. Petrol has just returned to its pre pandemic price (plus a little extra), and I have no plans to buy a new car. Much of the entertainment sector is still shut down, and I have little desire to holiday abroad until the tests and flight chaos is sorted out. So I am not clear at present where and how I am going to be spending on inflated items.

Edit to add, ISTM the Budget took a chunk of spending out of the economy in the form of higher NI, higher tax on dividends, and frozen tax thresholds, so will be deflationary.

The government is increasing public sector pay and encouraging the private sector to raise pay. Energy and raw material prices have risen sharply. All this pushes up business costs and businesses are and will respond with higher prices. You only have to read the latest reports from the likes of Unilever to see the extent of price increases with more to come. The unions will push for higher pay because of inflation which will result in further inflation. The inflation is here to stay. The government hopes it will be expansionary inflation but it could easily be stagflation. Either way it changes the ballgame on the risks of holding cash.

scrumpyjack wrote:The government is increasing public sector pay and encouraging the private sector to raise pay. Energy and raw material prices have risen sharply. All this pushes up business costs and businesses are and will respond with higher prices. You only have to read the latest reports from the likes of Unilever to see the extent of price increases with more to come. The unions will push for higher pay because of inflation which will result in further inflation. The inflation is here to stay. The government hopes it will be expansionary inflation but it could easily be stagflation. Either way it changes the ballgame on the risks of holding cash.

But public sector pay rises will be financed out of higher taxation. I suspect the massive Govt borrowing of recent years has now reached its limits.
Private sector pay rises, and concommitant price increases, will be subject to the laws of supply and demand. I have largely substituted Unilever brands with other cheaper (but just as good) options. Obviously many price rises are due to the massive disruption that Covid has inflicted on international supply chains, but it seems that international gas prices are dropping now, and I wonder whether we will still be worrying about raw material inflation in 6 months or a year. A big unknown is the effect of going to net zero. I see it as very deflationary, in that Govts will have to raise all other taxes to replace those which are now raised on cheap fossil fuels.

Agree with much been said on the thread. I'm of the view we're going to have high inflation for a good while.

The way to tackle it is to raise interest rates substantially. But this will kill off economic growth, cause businesses to go bust and homeowners default on loans. The govt will be reluctant to do this. So will last a few years at least.

When you get inflation you first get boom in stick market and house prices. We've had that.

Then get commodities going up, oil gas etc. Now had that.

Next is pay rises public and private. Currently happening.

Lastly get businesses putting up prices. Ladt to happen as businesses don't want to lose customers who shop around for cheaper alternatives.

So we're getting a circular inflationary spiral, and only when interet rates go up will be stopped. For us reckon have to hold stocks even though feel risky as hedge against inflation. Cash loses money, as is gold this year. Houses prices will also keep or grow value.

XFool wrote:Then he sounds to me as though he hasn't any idea what he is talking about! Inflation isn't "Hyperinflation".

Most of the people who can remember the inflationary 1970s (50 years ago) are either dead or long retired, they think anything above 2% is hyperinflation!

Lanark wrote:

XFool wrote:Then he sounds to me as though he hasn't any idea what he is talking about! Inflation isn't "Hyperinflation".

Most of the people who can remember the inflationary 1970s (50 years ago) are either dead or long retired, they think anything above 2% is hyperinflation!

I remember it well and it got to 27% at one point. It now costs 100p to buy what 3p bought in 1970. The economic effects are disastrous and once it gets to over 6% it will be extremely difficult and painful to bring it down again. It is playing with fire.

Nimrod103 wrote:

scrumpyjack wrote:It seems clear to me, from the budget, that inflation is a crucial part of Rishi's plan for tackling the deficit. Talking up pay and substantially increasing public expenditure can only lead to more inflation. No doubt he thinks he can manage it hold it at 5% for a couple of years and then bring it back to 2%.

That is a very dangerous strategy IMO, because once people get used to inflation they build it into their expectations and the cat cannot be put back into the bag without a lot of pain. Politicians then defer the pain and kick the can down the road.

Reminds me of St Augustine's well known prayer. 'Oh Lord, give me chastity. But not yet'

I think I will reconsider my portfolio because I am rather overweight cash. If inflation goes up and stays up, that is not good. Also Sterling is likely to depreciate against other currencies. Other effects will probably be higher interest rates (helping bank shares, harming mortgages and so builders, gilt prices falling etc etc)

Anyway those are just my initial thoughts, apart from great relief that he has not done any of the things recommended by the Office for Tax Complication.

I can see where you are coming from, but it can also be argued that inflation can be impossible to engineer if the conditions are not conducive. If consumers refuse to spend, the price rises won’t stick. If pensioners cut back on spending because they are essentially on fixed incomes, and young families have high childcare costs, and net zero requires money to go out on EV’s and ASHP’s, how is the higher spending on inflated goods going to be financed?

The problem is consumers must spend when its food, fuel, heating bills, car related expenditure.

So Rishi and the BoE will be reluctant to raise rates. People like me and the wife will suffer unless we can insist that our employer bump our salarys.

I don't think inflation is going to be temporary. Central Bank heads, to paraphrase XFool, are talking their book.

Matt

TheMotorcycleBoy wrote:

Nimrod103 wrote:

scrumpyjack wrote:It seems clear to me, from the budget, that inflation is a crucial part of Rishi's plan for tackling the deficit. Talking up pay and substantially increasing public expenditure can only lead to more inflation. No doubt he thinks he can manage it hold it at 5% for a couple of years and then bring it back to 2%.

That is a very dangerous strategy IMO, because once people get used to inflation they build it into their expectations and the cat cannot be put back into the bag without a lot of pain. Politicians then defer the pain and kick the can down the road.

Reminds me of St Augustine's well known prayer. 'Oh Lord, give me chastity. But not yet'

I think I will reconsider my portfolio because I am rather overweight cash. If inflation goes up and stays up, that is not good. Also Sterling is likely to depreciate against other currencies. Other effects will probably be higher interest rates (helping bank shares, harming mortgages and so builders, gilt prices falling etc etc)

Anyway those are just my initial thoughts, apart from great relief that he has not done any of the things recommended by the Office for Tax Complication.

I can see where you are coming from, but it can also be argued that inflation can be impossible to engineer if the conditions are not conducive. If consumers refuse to spend, the price rises won’t stick. If pensioners cut back on spending because they are essentially on fixed incomes, and young families have high childcare costs, and net zero requires money to go out on EV’s and ASHP’s, how is the higher spending on inflated goods going to be financed?

The problem is consumers must spend when its food, fuel, heating bills, car related expenditure.

So Rishi and the BoE will be reluctant to raise rates. People like me and the wife will suffer unless we can insist that our employer bump our salarys.

I don't think inflation is going to be temporary. Central Bank heads, to paraphrase XFool, are talking their book.

Matt

I can only agree. Inflation is here, and not transitory. We have increased gas and electricity costs, increased fuel costs, increasing food and transportation costs, with more of the same coming, a likely increase in the base rate before the year-end, and then council taxes and energy prices likely to increase again in April, plus the increase in the minimum wage, and now Ofgem are talking of reviewing and adjusting (upwards) the energy price cap, because so many energy suppliers have been caught out/wrong-footed. Then there are going to be the implications of all the above on the various trades and businesses, which/who will be looking to adjust their prices to cover their increased costs.

richfool wrote:

TheMotorcycleBoy wrote:I don't think inflation is going to be temporary. Central Bank heads, to paraphrase XFool, are talking their book.

Matt

I can only agree. Inflation is here, and not transitory. We have increased gas and electricity costs, increased fuel costs, increasing food and transportation costs, with more of the same coming, a likely increase in the base rate before the year-end, and then council taxes and energy prices likely to increase again in April, plus the increase in the minimum wage, and now Ofgem are talking of reviewing and adjusting (upwards) the energy price cap, because so many energy suppliers have been caught out/wrong-footed. Then there are going to be the implications of all the above on the various trades and businesses, which/who will be looking to adjust their prices to cover their increased costs.

I still take the view that in this iteration any inflation spike is likely to be short-lived. Even the previous poster lists deflationary factors in his argument for future inflation! Non-transitory inflation means prices are rising year after year after year.

With growth rates likely to be poor in the next decade I argue for price spikes caused by supply problems which (absent war) resolve themselves at the higher pricing levels and therefore see the rises fall out of the inflation figures the following year or so.

At some point there should be severe volatility in equities arising from the above.

GS

GoSeigen wrote:

richfool wrote:

TheMotorcycleBoy wrote:I don't think inflation is going to be temporary. Central Bank heads, to paraphrase XFool, are talking their book.

Matt

I can only agree. Inflation is here, and not transitory. We have increased gas and electricity costs, increased fuel costs, increasing food and transportation costs, with more of the same coming, a likely increase in the base rate before the year-end, and then council taxes and energy prices likely to increase again in April, plus the increase in the minimum wage, and now Ofgem are talking of reviewing and adjusting (upwards) the energy price cap, because so many energy suppliers have been caught out/wrong-footed. Then there are going to be the implications of all the above on the various trades and businesses, which/who will be looking to adjust their prices to cover their increased costs.

I still take the view that in this iteration any inflation spike is likely to be short-lived. Even the previous poster lists deflationary factors in his argument for future inflation!

Such as?

TheMotorcycleBoy wrote:

GoSeigen wrote:

richfool wrote:I can only agree. Inflation is here, and not transitory. We have increased gas and electricity costs, increased fuel costs, increasing food and transportation costs, with more of the same coming, a likely increase in the base rate before the year-end, and then council taxes and energy prices likely to increase again in April, plus the increase in the minimum wage, and now Ofgem are talking of reviewing and adjusting (upwards) the energy price cap, because so many energy suppliers have been caught out/wrong-footed. Then there are going to be the implications of all the above on the various trades and businesses, which/who will be looking to adjust their prices to cover their increased costs.

I still take the view that in this iteration any inflation spike is likely to be short-lived. Even the previous poster lists deflationary factors in his argument for future inflation!

Such as?

Increase in base rate. Rising council tax.


GS