How long will high inflation last?

[Parky]

High inflation will last until we cannot afford to buy stuff. If the government "help" us by giving away money or reducing taxes it will last longer still.

[Bubblesofearth]

OK, but so what? How does that assist in answering NotSure's question which I was answering?

I was offering an alternative answer.

BoE

[dealtn]

OK, but so what? How does that assist in answering NotSure's question which I was answering?

I was offering an alternative answer.

BoE

Ok, to what question?

Not sure why you quoted me. I was confused.

[Mike4]

These BoE sharks are the same lot who said inflation would be 'transitory'.
Meanwhile anyone with a functioning central nervous system saw otherwise.

Take what they say with a massive pinch of salt - and assume it will be MUCH worse.

My opinion too. I suspect their forecast of 13.3% is as conservative as they dare in order to retain some public credibility. I bet privately they expect higher, and for several years. Unless you're right and Bailey does not have a functioning central nervous system.

On reflection you could be right. His interview yesterday morning (or was it this morning) on the "Today" programme left me wondering what is was he'd just said. That old cliché of "I understand what each individual word means, but the collectively in sentences they are meaningless" applied, I thought.

[1nvest]

.....Historic UK stock (FT All Share) price only real (after inflation) drawdowns ....When might a -66% drawdown peak (trough) occur ??? Could be this year, next year, or in 5 years time. I'm more inclined to several years for large UK debt erosion.

At the end of 2021 the Dow Jones was higher above its inflation-adjusted trendline than at any time other than 1928-1930 and higher than the 2000s or 1960s peaks.
Even during the recent correction/bear it was still sitting around the same elevated level as that which preceded the 2000 or 2008 50% bears.

The most likely outcome would be an approximate two-thirds decline vs inflation over the next 10-20 years, surprisingly similar to the FTAS you mentioned.

And to back that up, the high P/E of the US at the end of last year before this bear began, points towards a most probable outcome being a mid-single-digit annual real loss for the Dow over the next 20 years, which interestingly, gives an identical suggestion of an approximate two-thirds loss vs inflation over the next decade or two.

I think the next decade or two will be very tough for investors. But for now we have our first major bear market rally underway at the moment (which might even push high enough to make a nominal new high) and that will make bearish predictions look stupid for the next few weeks or months.

And there's also the baby-boom demographics, 1950's babies getting to be in their financially comfortable 70's+. Many looking to sell/drawdown whilst many younger generations not having the surplus capital to set aside (invest) to spend in their later years. Which I suspect will lead to a greater inclination to not have wealth being passed directly to family, but instead to be more "shared around". Trouble there is that even if a billionaire dies and has their wealth shared out across the population that's only a few pints each (tendency to be wasted/'lost').

[Bubblesofearth]

OK, but so what? How does that assist in answering NotSure's question which I was answering?

Fair point. I think I read your post as a likely outcome, and responded to that, rather than as a possible answer to the question.

You don't expect me to read these threads that carefully

BoE

[ADrunkenMarcus]

My opinion too. I suspect their forecast of 13.3% is as conservative as they dare in order to retain some public credibility. I bet privately they expect higher, and for several years.

I am of a generation without previous experience of excessive inflation. I don't really remember any Prime Minister before Tony Blair, although I have a vague memory of him coming to power. It is quite remarkable to observe such a change of circumstances. We all tend to be anchored by our own experiences.

It will be an enormous challenge for investors simply to preserve the value of their capital in real terms. If we imagine inflation closes 2022 around 13.3% and then we have a further 10% increase by the end of 2023, then you will need to grow your capital by a total of almost 25% over the two year period (2022 and 2023 calendar years) just to stand still. And it may be that if, say, inflation falls to an average of 5-6% in 2024 and 3% in 2025 then that will seem low even though it remains above target.

I am in the fortunate position of having a fixed rate mortgage until 2027, so the one silver lining is that all this inflation is eroding my debt away. That is counterbalanced by my wages shrinking significantly in real terms.

I guess my answer to the question is high inflation will last 'too long'!

Best wishes


Mark.

[absolutezero]

On reflection you could be right. His interview yesterday morning (or was it this morning) on the "Today" programme left me wondering what is was he'd just said. That old cliché of "I understand what each individual word means, but the collectively in sentences they are meaningless" applied, I thought.

There's a lot of that about!

[Mike4]

On reflection you could be right. His interview yesterday morning (or was it this morning) on the "Today" programme left me wondering what is was he'd just said. That old cliché of "I understand what each individual word means, but the collectively in sentences they are meaningless" applied, I thought.

There's a lot of that about!

Yes, one only has to listen to Her Truss-ship to hear plenty more!

I remember Labour-induced inflation peaking at within an ace of 25% just as Mrs Thatcher came into power. I'm sure we'll be having more of the same thing soon, given all our politicians (both Labour and Conservative) are too young to personally remember the economic carnage first hand.

My first job out of skool was in an office re-calculating the company price list and sending out the price rises every Monday morning to all the customers with accounts. Yes, a new, higher price list every week, and this was pretty normal at the time.

[77ss]

.....
I am of a generation without previous experience of excessive inflation. I don't really remember any Prime Minister before Tony Blair.....


Mark.

Oh happy days!

I was around in 1976, when inflation hit 24%.

Largely attributed, if I remember, to a tripling in the price of oil.

I don't remember having any issues. No capital, at the time, to waste away! And a steady, if modest, income.

[Mike88]

We have had to put up with low inflation for many years so whose to say we won't have a prolonged period of high inflation. In 2 years time there will be a General Election with both main parties promising to do things the economy can't afford. My guess is that high inflation will last at least 4 to 5 years.

[Mike4]

We have had to put up with low inflation for many years so whose to say we won't have a prolonged period of high inflation. In 2 years time there will be a General Election with both main parties promising to do things the economy can't afford. My guess is that high inflation will last at least 4 to 5 years.

If by "high inflation" we mean say over 10%, I reckon now high inflation is firmly embedded it will take a whole election cycle (5 years) for the electorate to realise they don't like it, then another cycle for politicians to actually do anything concrete about it. That's a decade. The government and authorities re well behind the curve on this. They've only recently stopped prattling on about how it is just a temporary blip.

How long was inflation above 10% last time around? A brief goggle suggests 8 years, with some near 10% bits either side.

[Mike88]

We have had to put up with low inflation for many years so whose to say we won't have a prolonged period of high inflation. In 2 years time there will be a General Election with both main parties promising to do things the economy can't afford. My guess is that high inflation will last at least 4 to 5 years.

If by "high inflation" we mean say over 10%, I reckon now high inflation is firmly embedded it will take a whole election cycle (5 years) for the electorate to realise they don't like it, then another cycle for politicians to actually do anything concrete about it. That's a decade. The government and authorities re well behind the curve on this. They've only recently stopped prattling on about how it is just a temporary blip.

How long was inflation above 10% last time around? A brief goggle suggests 8 years, with some near 10% bits either side.

We broadly agree but just for information, since the repeal of the Fixed Term Parliament Act 2011, the maximum duration of two election cycles in the present situation is just 7 years - 2 years in the current Parliament and 5 for a successor Parliament.

[CliffEdge]

Clearly inflation in the US is now on its way out. However, the UK rapidly becoming an economic basket case, has all the old resurgent British disease to deal with, unions, brexit, run on the pound
balance of payments issues and long-term inflation will stick around here while subsiding elsewhere in the West.
What a mess the UK is in six years after the referendum.

[XFool]

I don't really remember any Prime Minister before Tony Blair, although I have a vague memory of him coming to power.

Nominative determinism lives?

Sorry.

[ADrunkenMarcus]

I don't really remember any Prime Minister before Tony Blair, although I have a vague memory of him coming to power.

Nominative determinism lives?

Sorry.

I do hope not - he looks like Eric Honecker these days!

[BT63]

I think it's more of a case of a strong dollar rather that a weak pound. The Euro isnt doing too well either.

Long dollar looks like an extremely crowded trade.

The ratio of speculators long:short is about 6:1 while the commercials are at a long:short ratio of 1:16.

Unless 'it's different this time', that's signalling a long and deep reversal in the Dollar. A multi-year downtrend in the Dollar is very probably just around the corner.

Don't rule out the US turning itself into a 'basket case' to borrow a phrase from another poster referring to the UK. Both the UK and the US turned themselves into a joke during the inflationary 1970s.

[Hariseldon58]

Worth considering whether inflation is going to be protected in the UK and less so in say the USA.

That’s likely to have consequences for the pound, we might see relatively better performance for US exposed investments.

[Itsallaguess]

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

[CliffEdge]

I wasn't born yesterday you know!