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How long will high inflation last?

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absolutezero
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Re: How long will high inflation last?

#520682

Postby absolutezero » August 8th, 2022, 10:16 am

Itsallaguess wrote:
Snorvey wrote:
The Euro isnt doing too well either.


I think sometimes it might be worth a few of our local self-flagellation experts lifting their eyes and seeing just how things are going in the Euro area...

https://ec.europa.eu/eurostat/documents/2995521/14644650/2-29072022-AP-EN.pdf

Cheers,

Itsallaguess

Don't be coming in here with your anti-EU facts! :lol:

pje16
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Re: How long will high inflation last?

#520692

Postby pje16 » August 8th, 2022, 11:10 am

"People are going back to cash to keep tighter control on their spending as living costs soar, according to new research by the Post Office.
Post offices handled £801m in personal cash withdrawals in July, the most since records began five years ago.
That's up more than 20% from a year earlier".
source:
https://www.bbc.co.uk/news/business-62437819

was surprised to read that can I assumed their credt cards are maxed out

scotview
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Re: How long will high inflation last?

#520828

Postby scotview » August 8th, 2022, 8:41 pm

I've never understood why Central Banks don't target deflation (say, -1%), or at least zero inflation. Wouldn't that just be great.

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Re: How long will high inflation last?

#520835

Postby pje16 » August 8th, 2022, 9:03 pm

a smart idea, but when has that ever happened in reality

Mike4
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Re: How long will high inflation last?

#520837

Postby Mike4 » August 8th, 2022, 9:34 pm

scotview wrote:I've never understood why Central Banks don't target deflation (say, -1%), or at least zero inflation. Wouldn't that just be great.


Because of the negative feedback loop. If there is deflation, people know <whatever they want to buy> will be a little cheaper next month so they make the logical and sensible decision to delay buying it for as long as possible. Then the economy comes to a grinding halt because everyone has stopped or is delaying spending. Cue massive drops in sales, job losses, companies going bust so tax not paid, GDP plummets, ever less profit made so ever less tax paid, all the balls fall on the floor and the even juggler gets the sack.

Fear of this scenario is why a little bit of inflation (2% actually) is always considered essential.

All AIUI.

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Re: How long will high inflation last?

#520841

Postby Alaric » August 8th, 2022, 9:59 pm

Mike4 wrote:If there is deflation, people know <whatever they want to buy> will be a little cheaper next month so they make the logical and sensible decision to delay buying it for as long as possible. .



I find that argument unconvincing. Energy and food consumption cannot be deferred, nor up to a point can services. If we look at electronic goods, the price of these goes downwards or the specification increases. There's persistent demand for the newest model. Perhaps the theorists of the deflation effect didn't live in a moderm consumer orientated society. Anyway if wages are stable and prices fall, why isn't everyone better off?

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Re: How long will high inflation last?

#520886

Postby dealtn » August 9th, 2022, 8:01 am

Alaric wrote:
Mike4 wrote:If there is deflation, people know <whatever they want to buy> will be a little cheaper next month so they make the logical and sensible decision to delay buying it for as long as possible. .



I find that argument unconvincing. Energy and food consumption cannot be deferred, nor up to a point can services. If we look at electronic goods, the price of these goes downwards or the specification increases. There's persistent demand for the newest model. Perhaps the theorists of the deflation effect didn't live in a moderm consumer orientated society. Anyway if wages are stable and prices fall, why isn't everyone better off?


And the 80% of spending that isn't energy or food? Economists, and central bankers, have a different view.

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Re: How long will high inflation last?

#520921

Postby Mike4 » August 9th, 2022, 9:13 am

dealtn wrote:
Alaric wrote:
Mike4 wrote:If there is deflation, people know <whatever they want to buy> will be a little cheaper next month so they make the logical and sensible decision to delay buying it for as long as possible. .



I find that argument unconvincing. Energy and food consumption cannot be deferred, nor up to a point can services. If we look at electronic goods, the price of these goes downwards or the specification increases. There's persistent demand for the newest model. Perhaps the theorists of the deflation effect didn't live in a moderm consumer orientated society. Anyway if wages are stable and prices fall, why isn't everyone better off?


And the 80% of spending that isn't energy or food? Economists, and central bankers, have a different view.



And I believe, it is widely considered amongst said economists and central bankers that deflation is inherently unstable, so the consequences of attempting to embed the suggested 1% deflation *could* run away into self-feeding increases in the deflation rate so it is better not to take the risk.

It *could* turn out to be so utterly and totally disastrous for the economy due to this runaway risk that it is generally agreed it should not be attempted. Not even attempt zero inflation in case they get it wrong and deflation gets a grip.

Inflation out of control is considered better to have than deflation out of control, therefore it is better to aim for a bit of inflation rather than a bit of deflation given there will always be one or the other. Hence the 2% inflation settled on as a target rather than xero.

Again all AIUI as a plumber.

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Re: How long will high inflation last?

#520927

Postby Nimrod103 » August 9th, 2022, 9:27 am

Mike4 wrote:
dealtn wrote:
Alaric wrote:
Mike4 wrote:If there is deflation, people know <whatever they want to buy> will be a little cheaper next month so they make the logical and sensible decision to delay buying it for as long as possible. .



I find that argument unconvincing. Energy and food consumption cannot be deferred, nor up to a point can services. If we look at electronic goods, the price of these goes downwards or the specification increases. There's persistent demand for the newest model. Perhaps the theorists of the deflation effect didn't live in a moderm consumer orientated society. Anyway if wages are stable and prices fall, why isn't everyone better off?


And the 80% of spending that isn't energy or food? Economists, and central bankers, have a different view.



And I believe, it is widely considered amongst said economists and central bankers that deflation is inherently unstable, so the consequences of attempting to embed the suggested 1% deflation *could* run away into self-feeding increases in the deflation rate so it is better not to take the risk.

It *could* turn out to be so utterly and totally disastrous for the economy due to this runaway risk that it is generally agreed it should not be attempted. Not even attempt zero inflation in case they get it wrong and deflation gets a grip.

Inflation out of control is considered better to have than deflation out of control, therefore it is better to aim for a bit of inflation rather than a bit of deflation given there will always be one or the other. Hence the 2% inflation settled on as a target rather than xero.

Again all AIUI as a plumber.


There have been periods of disinflation, but I cannot recall ever hearing about outright deflation since major currencies came off the gold standard. When Sterling was based on gold (or silver before that), periods of inflation and deflation roughly cancelled each other out. The spending power of the British penny was roughly the same for a thousand years.

But with fiat currency, a basket of goods costs what the Government of the day says it costs. Given they associate deflation with a drop in living standards, that must be avoided at all costs. My understanding that they decided on a low average inflation rate (arbitrarily chosen at 2%), was based on the idea that such an economy helps risk taking entrepreneurs from going bankrupt too often.

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Re: How long will high inflation last?

#520929

Postby dealtn » August 9th, 2022, 9:35 am

Nimrod103 wrote:My understanding that they decided on a low average inflation rate (arbitrarily chosen at 2%), ...


Arbitrarily is a little harsh I think.

https://www.lse.ac.uk/iga/assets/docume ... ealand.pdf

(You might also want to "google" Barro and Gordon 1983 too).

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Re: How long will high inflation last?

#520985

Postby xeny » August 9th, 2022, 12:15 pm

scotview wrote:I've never understood why Central Banks don't target deflation (say, -1%), or at least zero inflation. Wouldn't that just be great.


Because mild inflation lets roles which have ended up over remunerated gently get deflated to something market appropriate by a few years of below inflation pay rises. People tend to react badly to numerical pay cuts.

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Re: How long will high inflation last?

#521065

Postby Bubblesofearth » August 9th, 2022, 3:37 pm

Mike4 wrote:
Because of the negative feedback loop. If there is deflation, people know <whatever they want to buy> will be a little cheaper next month so they make the logical and sensible decision to delay buying it for as long as possible. Then the economy comes to a grinding halt because everyone has stopped or is delaying spending. Cue massive drops in sales, job losses, companies going bust so tax not paid, GDP plummets, ever less profit made so ever less tax paid, all the balls fall on the floor and the even juggler gets the sack.

Fear of this scenario is why a little bit of inflation (2% actually) is always considered essential.

All AIUI.


The deferred purchase argument makes no sense to me. Maybe it would introduce a lag period into the economy but, unless people were going permanently settle for less stuff, then it would be a one-off.

Also there's no evidence that, prior to coming off the gold standard, there was much deferral of purchase despite alternating periods of inflation and deflation.

A stated reason for targeting positive inflation has to do with maintaining the effectiveness of monetary policy;

https://www.ecb.europa.eu/mopo/strategy ... ex.en.html

From which;

Providing a safety margin against the risk of deflation and making sure monetary policy remains effective when it needs to respond to inflation that is too low. Having a margin against deflation is important because there are limits to how far interest rates can be cut. In a deflationary environment monetary policy may not be able to sufficiently stimulate the economy by using its interest rate instrument. This makes it more difficult for monetary policy to fight deflation than to fight inflation.

BoE

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Re: How long will high inflation last?

#522947

Postby vand » August 16th, 2022, 7:40 pm

dealtn wrote:
Nimrod103 wrote:My understanding that they decided on a low average inflation rate (arbitrarily chosen at 2%), ...


Arbitrarily is a little harsh I think.

https://www.lse.ac.uk/iga/assets/docume ... ealand.pdf

(You might also want to "google" Barro and Gordon 1983 too).


When Brown handed "independence" to the BoE he did so with a 2.5% inflation target. He later fudged it down to 2% which has somehow become the accepted orthodoxy. People tend to have very short and selective memories when all they do is consume current financial news.

I don't know if 2% is a better target than 2.5%. Neither does anyone. That should be for the market to determine, not central planners.

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Re: How long will high inflation last?

#523342

Postby dealtn » August 18th, 2022, 8:20 am

vand wrote:
dealtn wrote:
Nimrod103 wrote:My understanding that they decided on a low average inflation rate (arbitrarily chosen at 2%), ...


Arbitrarily is a little harsh I think.

https://www.lse.ac.uk/iga/assets/docume ... ealand.pdf

(You might also want to "google" Barro and Gordon 1983 too).


When Brown handed "independence" to the BoE he did so with a 2.5% inflation target. He later fudged it down to 2% which has somehow become the accepted orthodoxy. People tend to have very short and selective memories when all they do is consume current financial news.

I don't know if 2% is a better target than 2.5%. Neither does anyone. That should be for the market to determine, not central planners.


The 2.5% and 2% targets aren't different just by the numerical change, and weren't fudged either. They were in combination with the switch in the official measure away from RPI to CPI. The latter having numerous differences in methodology and calculation such that the change was broadly consistent. As before I suggest you read some of the literature around this subject.

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Re: How long will high inflation last?

#523460

Postby Kantwebefriends » August 18th, 2022, 12:38 pm

Mike4 wrote:Because of the negative feedback loop. If there is deflation, people know <whatever they want to buy> will be a little cheaper next month so they make the logical and sensible decision to delay buying it for as long as possible. Then the economy comes to a grinding halt because everyone has stopped or is delaying spending. Cue massive drops in sales, job losses, companies going bust so tax not paid, GDP plummets, ever less profit made so ever less tax paid, all the balls fall on the floor and the even juggler gets the sack.


The duty always falls on some pedant and today it's me. What you have just described is a positive feedback loop.

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Re: How long will high inflation last?

#523471

Postby Mike4 » August 18th, 2022, 1:23 pm

Kantwebefriends wrote:
Mike4 wrote:Because of the negative feedback loop. If there is deflation, people know <whatever they want to buy> will be a little cheaper next month so they make the logical and sensible decision to delay buying it for as long as possible. Then the economy comes to a grinding halt because everyone has stopped or is delaying spending. Cue massive drops in sales, job losses, companies going bust so tax not paid, GDP plummets, ever less profit made so ever less tax paid, all the balls fall on the floor and the even juggler gets the sack.


The duty always falls on some pedant and today it's me. What you have just described is a positive feedback loop.


Of course, it is! You're right! Fanx....

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Re: How long will high inflation last?

#546378

Postby Itsallaguess » November 14th, 2022, 7:18 am

October update here for the Euro area annual inflation estimate -

https://ec.europa.eu/eurostat/documents/2995521/15131964/2-31102022-AP-EN.pdf/9a37ec66-2f69-5b3c-a791-662cec2f439b?t=1666964020949

Some interesting underlying figures in there that we don't seem to get too much visibility of here in the UK, where it would be easy to assume that our inflation problems are somehow unique to this country, and not part of a wider global problem.

Cheers,

Itsallaguess


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