How much cash is too much cash?

[CliffEdge]

My expenditure has gone up. I spent £42.07 in Lidl last Monday, the highest amount I have ever spent there on one visit.
I think this because of the increase in RPI which means I need more cash now to buy the same things.

[vand]

On next week's episode of 'Inflation doesn't affect me' -

Dave from Bristol explains that he doesn't know what all the fuss is about rising holiday costs.

Since deciding to walk to Benidorm instead of taking a flight, the cost of his two-week break has actually come down!

Cheers,

Itsallaguess

That seems to be how CPI works.....

Actually its a good example of how CPI is better than RPI - albeit quite extreme, but extreme examples are often the best way of illustrating things.

Acknowledging that substitution, including not purchasing, occurs in the real world, is a better way of looking at inflation. It is, after all, a macro-economic measure, and not a measure of any individual's (change in) micro-economic cost of living.

Simoan seems to have got this distinction better than some. Inflation and individual's (change) in cost of living, aren't the same thing.

still trying to argue that nothing is a substitute for something is pretty weak.

I don't buy groceries for entertainment, I buy them to eat. And on the occasions that I buy steak and caviar its because I derive more enjoyment from them than chicken wings and hummus.

[dealtn]

On next week's episode of 'Inflation doesn't affect me' -

Dave from Bristol explains that he doesn't know what all the fuss is about rising holiday costs.

Since deciding to walk to Benidorm instead of taking a flight, the cost of his two-week break has actually come down!

Cheers,

Itsallaguess

That seems to be how CPI works.....

Actually its a good example of how CPI is better than RPI - albeit quite extreme, but extreme examples are often the best way of illustrating things.

Acknowledging that substitution, including not purchasing, occurs in the real world, is a better way of looking at inflation. It is, after all, a macro-economic measure, and not a measure of any individual's (change in) micro-economic cost of living.

Simoan seems to have got this distinction better than some. Inflation and individual's (change) in cost of living, aren't the same thing.

still trying to argue that nothing is a substitute for something is pretty weak.

I don't buy groceries for entertainment, I buy them to eat. And on the occasions that I buy steak and caviar its because I derive more enjoyment from them than chicken wings and hummus.

And when you buy steak and caviar so have less money left over to buy other things, and therefore buy less, or nothing, of them, how do you suggest that gets incorporated into the inflation calculation?

You might think that's "weak" but it is how the real world works, and therefore the appropriate way to measure a macro-economic phenonemon.

[simoan]

I don't buy groceries for entertainment, I buy them to eat. And on the occasions that I buy steak and caviar its because I derive more enjoyment from them than chicken wings and hummus.

Far be it for me to point out that three of these items are not covered by CPI. And only rump steak is included, which I don’t like. More of a sirloin man myself and then not of a pre-packaged supermarket variety.

This is the point I have been trying to make. I’m not denying inflation exists. just that the CPI measure has no meaning with respect to MY cost of living and how that relates to MY cash holdings.

[vand]

On next week's episode of 'Inflation doesn't affect me' -

Dave from Bristol explains that he doesn't know what all the fuss is about rising holiday costs.

Since deciding to walk to Benidorm instead of taking a flight, the cost of his two-week break has actually come down!

Cheers,

Itsallaguess

That seems to be how CPI works.....

Actually its a good example of how CPI is better than RPI - albeit quite extreme, but extreme examples are often the best way of illustrating things.

Acknowledging that substitution, including not purchasing, occurs in the real world, is a better way of looking at inflation. It is, after all, a macro-economic measure, and not a measure of any individual's (change in) micro-economic cost of living.

Simoan seems to have got this distinction better than some. Inflation and individual's (change) in cost of living, aren't the same thing.

still trying to argue that nothing is a substitute for something is pretty weak.

I don't buy groceries for entertainment, I buy them to eat. And on the occasions that I buy steak and caviar its because I derive more enjoyment from them than chicken wings and hummus.

And when you buy steak and caviar so have less money left over to buy other things, and therefore buy less, or nothing, of them, how do you suggest that gets incorporated into the inflation calculation?

You might think that's "weak" but it is how the real world works, and therefore the appropriate way to measure a macro-economic phenonemon.

I only have less money to buy other stuff than before if the inflation on steak and caviar outstrips my wage growth.

You know... in Venezuela prices have risen so much that people everywhere have had to "substitute" their somethings for a whole lot of nothings. They don't buy 1/10th of the goods and services they used to because they can't afford them any more. But by your view of the world they aren't suffering from inflation because, hey, they don't buy those things any more, so the ongoing price increases are irrelevant.

[dealtn]

That seems to be how CPI works.....

Actually its a good example of how CPI is better than RPI - albeit quite extreme, but extreme examples are often the best way of illustrating things.

Acknowledging that substitution, including not purchasing, occurs in the real world, is a better way of looking at inflation. It is, after all, a macro-economic measure, and not a measure of any individual's (change in) micro-economic cost of living.

Simoan seems to have got this distinction better than some. Inflation and individual's (change) in cost of living, aren't the same thing.

still trying to argue that nothing is a substitute for something is pretty weak.

I don't buy groceries for entertainment, I buy them to eat. And on the occasions that I buy steak and caviar its because I derive more enjoyment from them than chicken wings and hummus.

And when you buy steak and caviar so have less money left over to buy other things, and therefore buy less, or nothing, of them, how do you suggest that gets incorporated into the inflation calculation?

You might think that's "weak" but it is how the real world works, and therefore the appropriate way to measure a macro-economic phenonemon.

I only have less money to buy other stuff than before if the inflation on steak and caviar outstrips my wage growth.

You know... in Venezuela prices have risen so much that people everywhere have had to "substitute" their somethings for a whole lot of nothings. They don't buy 1/10th of the goods and services they used to because they can't afford them any more. But by your view of the world they aren't suffering from inflation because, hey, they don't buy those things any more, so the ongoing price increases are irrelevant.

You really don't understand my view - or that of the ONS in that case. If you really want to understand it can I suggest you engage and read about it rather than continue to make claims that don't represent either of our positions.

My view of the world is there is a significant suffering due to inflation in places of the world such as Venezuela, and that inflation would be captured. Inflation is far from irrelevant and by making that claim all you are doing is demonstrating your ignorance of what inflation is, and how it is measured.

[vand]

Actually its a good example of how CPI is better than RPI - albeit quite extreme, but extreme examples are often the best way of illustrating things.

Acknowledging that substitution, including not purchasing, occurs in the real world, is a better way of looking at inflation. It is, after all, a macro-economic measure, and not a measure of any individual's (change in) micro-economic cost of living.

Simoan seems to have got this distinction better than some. Inflation and individual's (change) in cost of living, aren't the same thing.

still trying to argue that nothing is a substitute for something is pretty weak.

I don't buy groceries for entertainment, I buy them to eat. And on the occasions that I buy steak and caviar its because I derive more enjoyment from them than chicken wings and hummus.

And when you buy steak and caviar so have less money left over to buy other things, and therefore buy less, or nothing, of them, how do you suggest that gets incorporated into the inflation calculation?

You might think that's "weak" but it is how the real world works, and therefore the appropriate way to measure a macro-economic phenonemon.

I only have less money to buy other stuff than before if the inflation on steak and caviar outstrips my wage growth.

You know... in Venezuela prices have risen so much that people everywhere have had to "substitute" their somethings for a whole lot of nothings. They don't buy 1/10th of the goods and services they used to because they can't afford them any more. But by your view of the world they aren't suffering from inflation because, hey, they don't buy those things any more, so the ongoing price increases are irrelevant.

You really don't understand my view - or that of the ONS in that case. If you really want to understand it can I suggest you engage and read about it rather than continue to make claims that don't represent either of our positions.

My view of the world is there is a significant suffering due to inflation in places of the world such as Venezuela, and that inflation would be captured. Inflation is far from irrelevant and by making that claim all you are doing is demonstrating your ignorance of what inflation is, and how it is measured.

So inflation is only real if it exceeds a certain pain tolerance?
I understand perfectly what inflation is - it's inflation of the money supply. The term "inflation" is the act of inflating something with more of what is already there. Units of currency when we are talking about money.

Rising consumer prices and the knock on effect on living standards are just derivatives of inflation.

[dealtn]

So inflation is only real if it exceeds a certain pain tolerance?

No.

I understand perfectly what inflation is - it's inflation of the money supply. The term "inflation" is the act of inflating something with more of what is already there. Units of currency when we are talking about money.

Which isn't what the CPI measures, and the metric being discussed.

Rising consumer prices and the knock on effect on living standards are just derivatives of inflation.

Agreed, they are macro-economic measures. But again, this isn't measured by any individual's change in cost of living, or by their individual decisions to purchase "steak and caviar" in any particular week, compared to a decision to do likewise on "chicken wings and hummus" in another.

[vand]

I don't buy groceries for entertainment, I buy them to eat. And on the occasions that I buy steak and caviar its because I derive more enjoyment from them than chicken wings and hummus.

Far be it for me to point out that three of these items are not covered by CPI. And only rump steak is included, which I don’t like. More of a sirloin man myself and then not of a pre-packaged supermarket variety.

This is the point I have been trying to make. I’m not denying inflation exists. just that the CPI measure has no meaning with respect to MY cost of living and how that relates to MY cash holdings.

Sure, the inflation rate is an aggregate interpretation. It can't tell you what anyone's particular personal rate of inflation is.

Same with GDP - it can't tell you anything about a single individual's purchasing power or standard of living change from year to year, only at a macro aggregated level.

Same with the unemployment rate - unemployment may go down but you might lose your job, or vice versa.

Even the stock market can go up or down and your own personal portfolio do something completely different.

No one is saying that macro aggregates can tell you what each individual is experiencing - that's why they're macro numbers, not personalised numbers.

[simoan]

Sure, the inflation rate is an aggregate interpretation. It can't tell you what anyone's particular personal rate of inflation is.
....
No one is saying that macro aggregates can tell you what each individual is experiencing - that's why they're macro numbers, not personalised numbers.

But that's the point I've been making all along. I'm not saying you don't understand that, but some other contributors have been living up to their usernames. I was told, without any doubt whatsoever, that my rate of inflation was 8% by one of them. It may seem obvious to you and a few others, but it's also obvious that many just don't get it or understand what CPI is and how it is calculated. They believe in order to maintain their standard of living, all they need to do is match the performance of CPI which is not true - their own rate of increase in cost of living may be higher or lower.

Anyway, I've just spent an hour reducing the inflation rate of my TV & Broadband services by 22%

[GoSeigen]

So inflation is only real if it exceeds a certain pain tolerance?
I understand perfectly what inflation is - it's inflation of the money supply. The term "inflation" is the act of inflating something with more of what is already there. Units of currency when we are talking about money.

Rising consumer prices and the knock on effect on living standards are just derivatives of inflation.

Wait what? Inflation is absolutely not "inflation of the money supply". It is growth in the CPI or the RPI depending which is being discussed. Money supply growth is an entirely different subject and has its own complications, e.g. which monetary aggregate is being measured, it is not simply "units of currency". Money supply growth is absolutely not directly related to inflation: there are other variables involved like velocity of money.

I think this is pertinent:

If you really want to understand it can I suggest you engage and read about it rather than continue to make claims that don't represent either of our positions.

GS

[1nvest]

Rather than CPI/RPI, a reasonable indicator of how well your portfolio might be doing in 'real' (after inflation) terms is to use average wage increases as the 'inflation' measure, or maybe a combination of house price and wage increases. A relative to average increase/decrease in standard of living measure rather than relative to a broad basket of goods measure that historically has relatively lagged standard of living increases largely due to technology (24/7 running robots churning out stuff without the cost of a massive workforce to otherwise do the same).

Here's ONS data for 1949 to 2015 https://www.ons.gov.uk/economy/grossdom ... s/kgq2/qna

[vand]

So inflation is only real if it exceeds a certain pain tolerance?
I understand perfectly what inflation is - it's inflation of the money supply. The term "inflation" is the act of inflating something with more of what is already there. Units of currency when we are talking about money.

Rising consumer prices and the knock on effect on living standards are just derivatives of inflation.

Wait what? Inflation is absolutely not "inflation of the money supply". It is growth in the CPI or the RPI depending which is being discussed. Money supply growth is an entirely different subject and has its own complications, e.g. which monetary aggregate is being measured, it is not simply "units of currency". Money supply growth is absolutely not directly related to inflation: there are other variables involved like velocity of money.

I think this is pertinent:

If you really want to understand it can I suggest you engage and read about it rather than continue to make claims that don't represent either of our positions.

GS

I'm sorry that you don't agree, and I understand why, because from a layman perspective and since the widespread adoption of Keynesian policy
"inflation" in our modern language is used to describe changes in the price of goods and services, but that is a fairly modern definition. The term "inflation" was originally used to describe changes in the money supply.

Inflation IS always and everywhere a monetary phenomenon. There is no other way that the price of a barrel of oil goes from $2 to $120. There is no other way that the cost of a can of soup goes from 5p to £1, or a 1 day travelcard goes from £1 to £15.

Yes, certerus paribus conditions must apply and in reality things are always changing - money velocity as you say has been on a long downward trajectory. The (money) inflation has masked the natural deflation that would have happened otherwise. But MV cannot go to zero. What happens when the MV downtrend reverses? After all, it cannot go to zero.

[SteadyAim]

Anywhere from 20% to 40% cash is fairly easy to justify imho, so you can just stick with your current allocation if you want. The cash seems a poor choice when the interest is nowhere near inflation, but it de-risks the equity part. If shares fall a lot, you can use some of the cash to buy more shares bringing you back to your previous allocation (and hopefully buying the shares at a low point). If the shares go up, you can sell a few, taking profits.