Inflation

[stevensfo]

It amazes me that no commentator has cottoned on to the static level of the price index.

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%

Virtually no inflation for the last 9 months. Come May we shall be below the 2% target. And what will the MPC do then?

TJH

Blame some other measurement as a reason for keeping rates high.

Those rich folk are addicted to their risk-free money

I admit to not being an ecomist or anything to do with the Financial world, but I do travel a lot. If interest rates go back down to their almost 0% rates, than we will see the banks once again, not wanting our money and trying to charge us for them receiving our salaries and thus receiving assets that legally belong to them!!

Best keep arounf 4% so they get their pound of flesh without making our lives a misery and forcing us to keep our hard earned as cash under the mattress.

Just try and aim for inflation+ . Not easy.

Steve

[GoSeigen]

Further, the private sector debt situation is material. Households have had sixteen years so far (at least) to pay down their mortgage borrowing which leaves them in a far less vulnerable position than in 2006 as rates rise. There will be a marginal effect for people who bought houses recently at way too high a price, but that will not translate to significant credit stress or cause banking problems IMO. In fact, when rates are high is a good time to borrow so we may see a recovery in consumer lending after some time.

With the above reasoning and my other observations of the market I am continuing in my 2020 expectation of an epic equity bull market unfolding. I think buying gilts in the hope of a yield crash close to zero again is a profound misreading. IMV wage levels are too low and due a serious adjustment, I can't see resulting inflationary pressures being controlled, so this will be good for equity and good for the (nominal) economy.

There, that's my crystal ball, now feel free to laugh when it all goes wrong!

Six months on interest rates have not fallen, nor have gilt yields to any significant extent.

Inflation has dropped but still is above the BoE target. I think with market expectation of interest rate cuts shares should perform well. If the cuts don't come that will be negative for gilts. Would much rather be overweight shares than fixed interest with the current setup.


I'd been writing FTSE index puts recently; with the FTSE100 making new 20-month highs I've increased leverage today adding to our outright long futures positions and selling our last remaining gilts.

Anyone else buying the FTSE?

GS

[funduffer]

It amazes me that no commentator has cottoned on to the static level of the price index.

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%

Virtually no inflation for the last 9 months. Come May we shall be below the 2% target. And what will the MPC do then?

TJH

I agree that it is mathematically almost certain that the May inflation figure will be at or below 2%, barring some new world crisis.

The monthly increase in CPI for March and April 2023 were 0.8% and 1.2%. These will be replaced in the annual inflation rate by the corresponding increases for March and April 2024. It is likely they will be much lower, i.e. near zero!

The MPC need to signal this and that they will be reducing interest rates several time this year, so that the markets and business know the direction of travel.

FD

[Tedx]

The FTSE looks like a bargain compared to most other major indices

[mike]

The MPC need to signal this and that they will be reducing interest rates several time this year, so that the markets and business know the direction of travel.
FD

Here you go, some bedtime reading

https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2024/march-2024

[Nimrod103]

It amazes me that no commentator has cottoned on to the static level of the price index.

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%

Virtually no inflation for the last 9 months. Come May we shall be below the 2% target. And what will the MPC do then?

TJH

I agree that it is mathematically almost certain that the May inflation figure will be at or below 2%, barring some new world crisis.

The monthly increase in CPI for March and April 2023 were 0.8% and 1.2%. These will be replaced in the annual inflation rate by the corresponding increases for March and April 2024. It is likely they will be much lower, i.e. near zero!

The MPC need to signal this and that they will be reducing interest rates several time this year, so that the markets and business know the direction of travel.

FD

I was always led to believe that interest changes have lags of 6 months to a year. So if maintaining 5.25% doesn’t have an impact until September at the earliest, yet we will have 2% inflation reached in say May, what will be the inflation rate in September? This is why I think the Bank of England is way behind the curve, and their actions may well cripple the economy.

[Tedx]

They won't move until the Fed moves.

[dealtn]

They won't move until the Fed moves.

They have done previously

[Nimrod103]

https://www.telegraph.co.uk/business/20 ... e-mistake/

Asked to evaluate the Bank’s record on interest rates over the past two years, Sir Jacob recited the words of hymn-writer Isaac Watts: “Tis the voice of the Sluggard: I heard him complain, ‘You have wak’d me too soon, I must slumber again’.”
The poem by the man dubbed the father of English hymnody warns against the dangers of laziness. After the couplet Sir Jacob recited, it continues:
“A little more sleep, a little more slumber,
“Thus he wastes half his days and his hours without number.”

And we pay millions for the incompetent MPC.

I vote for Swati as the next Governor of the BoE.
In one corner is Swati Dhingra who wants to cut rates now. She has consistently been the most cautious MPC member, calling for rates to be held ever since they reached 3pc in November 2022.

[Arborbridge]

I find it an interesting facet of human nature that we so easily find others inadequate or incompetent at doing their jobs - while being almost a certainty that those criticising could do no better.

Someone has to make those virtually impossible decisions and it's not us, thank goodness, or we would be the ones being told we are incompetent.

Arb.

[Nimrod103]

I find it an interesting facet of human nature that we so easily find others inadequate or incompetent at doing their jobs - while being almost a certainty that those criticising could do no better.

Someone has to make those virtually impossible decisions and it's not us, thank goodness, or we would be the ones being told we are incompetent.

Arb.

I take it then that you do not approve of Labour's or Liberal's attacks on the Tories? I have always advocated an evidence based approach to life, and if my interpretation of evidence suggests that somebody in a position of authority (managerial or academic) is making a pig's ear of things, then I see no problem in speeking my mind. No organization can work without fair appraisal of people's performance against metrics, and IMHO the MPC's performance has been abysmal (so has the Govt's but that is a different story). We currently have interest rates of 5.25%. Switzerland is running a prosperous economy with rates of 1.5%. I would send the MPC to Switzerland to learn how to do things properly. I would also send the current Govt there as well, but I would be booking them into Dignitas.

[Arborbridge]

I find it an interesting facet of human nature that we so easily find others inadequate or incompetent at doing their jobs - while being almost a certainty that those criticising could do no better.

Someone has to make those virtually impossible decisions and it's not us, thank goodness, or we would be the ones being told we are incompetent.

Arb.

I take it then that you do not approve of Labour's or Liberal's attacks on the Tories? I have always advocated an evidence based approach to life, and if my interpretation of evidence suggests that somebody in a position of authority (managerial or academic) is making a pig's ear of things, then I see no problem in speeking my mind. No organization can work without fair appraisal of people's performance against metrics, and IMHO the MPC's performance has been abysmal (so has the Govt's but that is a different story). We currently have interest rates of 5.25%. Switzerland is running a prosperous economy with rates of 1.5%. I would send the MPC to Switzerland to learn how to do things properly. I would also send the current Govt there as well, but I would be booking them into Dignitas.

If your solution is to send anyone you think has made a pig's ear of it to Dignitas, then we will be in a seriously worse mess than ever. If sounds like your version of the final solution, and that's been tried already.

[the0ni0nking]

Switzerland, due to the nature of their economy etc, largely avoided the inflation surge that the rest of Europe witnessed. (Inflation peaked in Switzerland at 3.5%)

So them adopting a more "aggressive" approach to interest rates is hardly surprising. But if that doesn't fit your chosen narrative then feel free to ignore it.

[Nimrod103]

Switzerland, due to the nature of their economy etc, largely avoided the inflation surge that the rest of Europe witnessed. (Inflation peaked in Switzerland at 3.5%)

So them adopting a more "aggressive" approach to interest rates is hardly surprising. But if that doesn't fit your chosen narrative then feel free to ignore it.

That was my point. The Swiss run a successful economy which avoided the recent peak in inflation, and therefore they have no need for interest rate masochism. When I first visited Switzerland, the Franc was worth 8p, it is now worth 88p. They have a prosperous banking, finance, insurance and high tech industry based economy, outside the EU, with trading links to the whole World. A bit like how I would describe the good bits of the UK economy, and yet the Swiss economy and Swiss people have performed so much better during this last half century. Whom should I blame for the UK's failure?

[Wuffle]

Age of consent plus the 50 years of failure..... So everyone aged 68.

W.

[Bubblesofearth]

Whom should I blame for the UK's failure?

The same person we always blame for everything.

Somebody else.

BoE

[Arborbridge]

Switzerland, due to the nature of their economy etc, largely avoided the inflation surge that the rest of Europe witnessed. (Inflation peaked in Switzerland at 3.5%)

So them adopting a more "aggressive" approach to interest rates is hardly surprising. But if that doesn't fit your chosen narrative then feel free to ignore it.

That was my point. The Swiss run a successful economy which avoided the recent peak in inflation, and therefore they have no need for interest rate masochism. When I first visited Switzerland, the Franc was worth 8p, it is now worth 88p. They have a prosperous banking, finance, insurance and high tech industry based economy, outside the EU, with trading links to the whole World. A bit like how I would describe the good bits of the UK economy, and yet the Swiss economy and Swiss people have performed so much better during this last half century. Whom should I blame for the UK's failure?

I think the point being made was that one cannot compare the Swiss and UK economies because they are totally different in size, in demographics, in geography and in their historical relationship with other countries. The Swiss have a position which is unique in the world and not one we could ever emulate. I'm sure you would suggest differently: but in my view the two cannot be compared because the situations are so different.

Happy was my French brother in law who worked and was paid in Swiss Francs, but lived in France! Best of both worlds, by virtue of living near a unique border.

[1nvest]

Whom should I blame for the UK's failure?

The same person we always blame for everything. Somebody else.

... those that are appointed as representatives. Parliament/MP's. When they act poorly/selfishly, everyone else suffers. More so when there's no accountability (other than perhaps a inquest that takes many years and imposes no penalties (sweeps things under the carpet)).

When taxes for instance are unfair/unreasonable capital/investment is inclined to locate elsewhere. Buy/invest in the UK and that capital investment is taxed from day one even if it makes no profits. £100 invested for 10 years, when there's 4% inflation (Pound debasement such as via the state printing/spending additional Pounds), sell the same asset/business for £150 (inflation adjusted £100) and the state claims tax on the 50% 'capital gain'. a.k.a a form of wealth tax (have to 'invest' to avoid devaluation via debasement (inflation), relatively punitively taxed when you do). Net consequence is capital (people with money) move and pay fair (less punitive) taxes elsewhere, such as Switzerland where inbound capital is promoted such as via tax exemption of income and wealth tax from foreign business or real estate. It's constitution also mandates that taxation must be general and equal in nature and proportionate to one's ability to pay. Disproportionate impedes certain individuals, not others, for instance a traffic/parking infringement of £160 might be a third of one persons weekly take home pay penalty, significant, for another it might be insignificant/trivial.

The UK's poor management, tendency to often change the rules, tax unfairly, spend unwisely, is a repellent. Leading to where impression of 'growth' can only be accomplished via net migration "The return on gold does not depend on the fulfillment of some material condition. It is an ideological problem. It presupposes only one thing: the abandonment of the illusion that increasing the quantity of money creates prosperity.” Ludwig von Mises

GDP for instance as a measure is ... pretty much meaningless without context - such as relative GDP/capita. And/or measures should reflect relative debasement



Why store/hold/invest in £50 and £20 notes when alternative "currencies" such as US stock share certificates and gold can also relatively quickly/easily be converted into £10/£5 notes for local 'bartering' purposes.

[Urbandreamer]

Why store/hold/invest in £50 and £20 notes when alternative "currencies" such as US stock share certificates and gold can also relatively quickly/easily be converted into £10/£5 notes for local 'bartering' purposes.

Ignoring the political point's about specific countries governments, that's a interesting chart.
As it happens the IC has a interesting article about the purchasing power of gold.
https://www.investorschronicle.co.uk/ne ... as-soared/

Personally I think that it says a lot more about the fiat currency system, than the economy. If it does say anything about the economy then what it says is either that gold is getting more scarce or that we are finding ways of reducing the marginal cost of production.

Ps, off topic for this board, but I'm seriously considering changing the currency that I use. Now that we use contactless debit cards this is actually an option.

[Nimrod103]

That was my point. The Swiss run a successful economy which avoided the recent peak in inflation, and therefore they have no need for interest rate masochism. When I first visited Switzerland, the Franc was worth 8p, it is now worth 88p. They have a prosperous banking, finance, insurance and high tech industry based economy, outside the EU, with trading links to the whole World. A bit like how I would describe the good bits of the UK economy, and yet the Swiss economy and Swiss people have performed so much better during this last half century. Whom should I blame for the UK's failure?

I think the point being made was that one cannot compare the Swiss and UK economies because they are totally different in size, in demographics, in geography and in their historical relationship with other countries. The Swiss have a position which is unique in the world and not one we could ever emulate. I'm sure you would suggest differently: but in my view the two cannot be compared because the situations are so different.

Actually the main difference (I read recently) is that the Swiss have a much better work ethic. They would not, as a people, tolerate the level of idleness we accept as normal.