How high will inflation go ?
- Thread starter Justin Smith
- Start date
UK inflation hits 40-year high of 9% as energy bills soar
UK inflation hits 40-year high of 9% as energy bills soar
UK inflation rises to its highest rate for 40 years in the year to April, jumping to 9% from 7%.www.bbc.co.uk
Soon be at 10%, but, bearing in mind it would have got to that without the Ukraine war, how much higher will it go ?
I think the Beeb blaming it all on energy prices is ludicrous nonsense.
The Beeb didn't the ONS did 'Around three quarters of the rise in inflation in April came from higher electricity and gas bills, according to the Office for National Statistics (ONS).'
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Did you even read the article? The BBC isn't blaming it on anything. The article quotes the ONS who say it's mostly down to gas and electricity.
Getting all excited about inflation rises just shows how out of touch you are with reality. This has been predicted for years and I doubt we have reached to peak yet.
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Inflation itself does not matter
What matters to each person is their individual relationship between income inflation, expenditure inflation and interest rate on any debt
For example
Person 1
Payrise +10%, Personal expenditure +9%, Mortgage fixed at 3%, House price inflation +8% - Happy bunny
Person 2
Benefit rise +3.1%, Personal expenditure inc rent +12%, (no mortgage but uses things like Klana on 20% apr) - Unhappy bunny
What matters to each person is their individual relationship between income inflation, expenditure inflation and interest rate on any debt
For example
Person 1
Payrise +10%, Personal expenditure +9%, Mortgage fixed at 3%, House price inflation +8% - Happy bunny
Person 2
Benefit rise +3.1%, Personal expenditure inc rent +12%, (no mortgage but uses things like Klana on 20% apr) - Unhappy bunny
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We've done the sums and after a bit of reorganisation of our lives we reckon we can cope with even high inflation. Energy bills are well under control, food is much simpler so less exotic ingredients and the mortgage is dropping rapidly.
Unlike my niece who has the heating on all day rather than wear a jumper.
Unlike my niece who has the heating on all day rather than wear a jumper.
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That’s one view, in normal times say thirty years ago I would have agreed with your outlook. The problem however, is we are not living in normal times, and the old rules do not seem to apply so concisely as in the past.
I put it down to massive undersupply in new builds, huge migration to the UK driving up the current housing stock, so in the last year rents have increased by 20% in my area, despite basically near zero wage increases for most.
Carefully structured property investments can still have a good potential return IMO, but not the normal house buyers type deals. Anyway, only time will tell, no one knows anything for sure except most people will be worse off in two years than they are today, but that always comes with the caveat some will do very well from others misery.
I would rather sink my spare cash into a monthly cash producing asset, even if the asset reduces in value, the cash keeps coming in, rents are unlikely to fall any great deal IMO, where is the excess housing for people to move to? Increased bills? Tenants will have to pay the extra as do homeowners, although a few will default, but life is all about risk.
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T
The Byre
Never a truer word said - and there is another danger I failed to mention - more bloody QE!
- Step one - more inflation.
- Step two - BoE raises rates.
- Step three - economy tanks.
- Step four - BoE creates stimulus through QE.
- Step five - Back to inflation!
That is one aspect I forgot - supply! The UK needs more affordable housing, but there are so many hurdles to overcome in most areas that laws, rules and regulations and the (local) government are preventing the very thing to claim to need to encourage.
One seldom loses out with property - the perverse thing is that when house prices fall, many owner-occupiers find themselves in negative equity and therefore cannot move and the supply dwindles and prices stagnate at current levels.
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- Original Poster
- #212
All totally predictable (since March 2020 in fact) :
UK interest rates raised to 1.25% by Bank of England
https://www.bbc.co.uk/news/business-61801362
Inflation - the rate at which prices rise - is currently at a 40-year high of 9%, and the Bank warned it could surpass 11% later this year.
Many of us have been saying on here we would do very well to stop inflation going over 10%, and that was before Ukraine.
The official (massaged) rate may go as high as 15%, I am not saying it will, but it's a definite possibility as the actual rate for most people will already be around that level.
Very worrying.
UK interest rates raised to 1.25% by Bank of England
https://www.bbc.co.uk/news/business-61801362
Inflation - the rate at which prices rise - is currently at a 40-year high of 9%, and the Bank warned it could surpass 11% later this year.
Many of us have been saying on here we would do very well to stop inflation going over 10%, and that was before Ukraine.
The official (massaged) rate may go as high as 15%, I am not saying it will, but it's a definite possibility as the actual rate for most people will already be around that level.
Very worrying.
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- Original Poster
- #213
It's not the only factor, but in my opinion it is the biggest, by far. It has affected every industry even those we would not consider. Take oil, remember back in April 2020 when they could not give oil away ?
What would you have done if you had been an oil company manager ?
And that's what they did (since magnified xxx% by the Ukraine war......) :
Crude oil was cheaper at the beginning of the Covid pandemic, because many businesses temporarily closed and demand for energy collapsed.
As life returned to normal, the demand for energy increased. But suppliers have struggled to keep up and prices have risen.
But the Petrol Retailers Association said customers had bought 15% less fuel in 2021 as a result of Covid. It said retailers had to make higher profits on each litre sold to cover costs.
https://www.bbc.co.uk/news/business-52188448
Oil’s Spectacular Covid Crash Set the World Up for $100 Crude
The energy industry cut back during the pandemic, paving the way for a runaway rally that has huge implications for the global economy.
On April 20, 2020, West Texas Intermediate crude, the U.S. benchmark, dropped to minus $40 a barrel. Oil industry leaders were forced into drastic choices that would affect the industry’s growth and its appeal to investors for years to come.
https://www.bloomberg.com/news/arti...economy-struggles-to-balance-post-covid-crash
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I personally got sick and tired of constant chipping away at money in my pockets so used the money earmarked for tax which was an over estimation anyway to pay off my mortgage and get ahead of these hikes in interest payments. I also have reduced my monthly pension payments by around £300 a month. Yes , I know this probably isn't the way to go about things, but nothing feels right at the moment and I want more physical money in my pocket to mitigate these huge rise in bills , food, etc etc.
There really is some extremely serious issues playing out now, alot of stuff is out of many people's control. Mentally I'm business wise exhausted and am working way less as my health is suffering and I simply have had enough of going above and beyond for little reward. My time is more important so work fewer hours but those hours are the top earning clients , no more working for barely profit / breaking even, I'm better off not taking that work on
There really is some extremely serious issues playing out now, alot of stuff is out of many people's control. Mentally I'm business wise exhausted and am working way less as my health is suffering and I simply have had enough of going above and beyond for little reward. My time is more important so work fewer hours but those hours are the top earning clients , no more working for barely profit / breaking even, I'm better off not taking that work on
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Suprised people believe covid is the main driver behind the recent surge in inflation. It is partly responsible for low supply, but reality is the main driver. The whole world runs on debt, printing non existent money and charging interest on it, money for nothing. The chickens are coming home to roost.
We live in an age where almost everyone has stopped saving for things, and instead expects them as a right. Latest car, iPhone, tv, house etc, finance the lot. This at a time when jobs have never been more at risk due to automation.
I think this downturn could be the worst I’ve ever seen, and I have seen a few.
We live in an age where almost everyone has stopped saving for things, and instead expects them as a right. Latest car, iPhone, tv, house etc, finance the lot. This at a time when jobs have never been more at risk due to automation.
I think this downturn could be the worst I’ve ever seen, and I have seen a few.
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I get the feeling that the end solution to this inflation issue will not be through a fairer redistribution of wealth or increases in wages/benefits. Just as globalisation allowed governments to print more money and keep costs low because of cheaper production of goods overseas (whilst making the asset owning richer), I think the next solution will be to promote more AI, Automation and robots to greatly reduce the cost of goods as well as cheaper forms of energy production.
So for example If before this crisis, the bottom 90% had 10% of the total wealth in a country, and that wealth allowed them to live their somewhat comfy lifestyle, they will now have only 2% of the total wealth to live the same/similar lifestyle (maybe slightly better and maybe much worse). As they say, the rich get richer and the poor get poorer.
But hey, maybe I've just been reading too much for my own good and I'm a bit too pessimistic.
So for example If before this crisis, the bottom 90% had 10% of the total wealth in a country, and that wealth allowed them to live their somewhat comfy lifestyle, they will now have only 2% of the total wealth to live the same/similar lifestyle (maybe slightly better and maybe much worse). As they say, the rich get richer and the poor get poorer.
But hey, maybe I've just been reading too much for my own good and I'm a bit too pessimistic.
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T
The Byre
THIS!
On May 26th, 2019, I wrote on this very forum the following -
I had no idea what was around the corner. I also was unaware that the Fed was about to start QE'ing like Billy'O to rescue the trading units of Nomura, JPMorgan, Goldman Sachs, Barclays, Citigroup, Deutsche Bank and BNP Paribas and others from repo and reverse repo deals that had gone badly wrong.
In 2019 there was no full-scale war in Ukraine, there was no pandemic. But for still undisclosed reasons, the Fed decided to funnel trillions of dollars in cumulative repo loans to the trading units of U.S. megabanks and their foreign counterparties. The Fed’s repo loans stretched from September 17, 2019 through July 2, 2020. The Fed has begun releasing the names of the banks and the amounts they had borrowed on a quarterly basis, following a two-year delay. The cumulative total was somewhere between $15-$20 trillion!
My doom-mongering back in 2019 went on with -
Well, wobble it did! And how!
I now have the dubious pleasure of saying 'I told you so!'
Hedge fund trader Jeremy Grantham came out of hibernation last year to predict that this one will be as bad as 1930 - or possibly worse!
Ex-BoE chair Mervyn King puts the blame for run-away inflation squarely on the irresponsible application of QE by central banks (Sky News interview May 2022). He concluded by saying that he is always available to help and advise the BoE and government. That's his way of saying "I told you so!"
So what could come next? Well, let's start with share prices falling steadily all the way to the floor - and that affects pensions across all affluent nations. And when I say to the floor, I mean into the Valley of Despair. That's when investors give up on shares and sell everything. And if they are using margin trades, they get to lose everything as well!
The pension funds have been pushed along the risk curve into deeper and deeper risk assets. They were forced to do this because they need between 5% and 8% returns to pay those pensions - and returns are getting harder and harder to find in secure companies - so some of them have been looking at dot-coms, techies and zombies, i.e. the first ones to go in a downturn!
Right now, US pensions have an official shortfall of $6 trillion, with a further $1 trillion to be added this year. By 2024, that deficit should reach $10 trillion.
When I came to the UK, everyone and their dog was banging on about ISAs. In the US, it was all about having a 401k and in Good Old Deutschland it was all about Rentenfonds. Oops! I thought. More government-sponsored Ponzi schemes to steal my money! Danke, aber nein danke!
As George Carlin predicted, they'll take it all!
What makes me so sure? Answer - CPI minus PPI.
If one subtracts producer price inflation (outputs) from consumer price inflation (CPI% - PPI%) in a healthy economy, one should get somewhere between 2 and 4. It is a great predictor of upturns and downturns in the economy. For example, in 1972 it fell to -7 in the US. And the 70s were an economic disaster. Fed chair, Paul Volcker had to raise the base interest rate to 20% before things calmed down.
The US is now at -8 and still falling! The UK is at -7.
Basking in a false sense of security, over the past two years we have had The Great Resignation. People have been leaving the workforce - taking early retirement, staying home to look after the kids and/or the cat, write 'The Great American Novel' or that Great British Crime Drama, become a black belt in full-contact origami - anything and everything for a better lifestyle.
As a result of The Great Resignation, unemployment everywhere is at record lows.
Prediction - over the next few years, we shall see The Great Unretirement! As those pensions fail and inflation eats away at the little that will be paid out, they will all come back again. So who's going to throw them a bone?
Old Mother Hubbard
Went to the cupboard,
To give the poor dog a bone;
When she came there,
The cupboard was bare,
And so the poor dog had none.
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Covid has completely destroyed the supply chain in my industry, it is combining with other acute factors like the Ukraine conflict and other chronic factors like monetary policy to produce an economic perfect storm. In isolation some of these problems are painful but solvable, together, all at once...well, we're in for an interesting time.
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Inflation in my business is currently running about 30% annualised in respect that is how much our turnover is expected to grow despite similar volumes to 2021 anticipated. I am not seeing it slow down either, if anything, it is accelerating. We are quite highly indexed to oil prices so we may be showing more than averages (about 20% for producer level input inflation supposedly). Notwithstanding, I can't quite believe the pace of what we're seeing. I think the BoE is asleep at the wheel too, don't think they have any grasp just how serious the cost increases are. The disparity between RPI and producer level input cannot hold so that suggests another 10% is set to be unleashed at some point or other. The dam can't hold forever on that, now cost increases are being passed straight back out to customers on a take-it-or-leave-it-basis, you only do that when you know there is no alternative.
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Re. 70s and rates. Be interested to know the % of an average late 70s income on an average mortgaged property value that interest rate increases consumed. A comparison of the 70s in stating a nominal interest value without the context of all other relevant metrics being provided is fairly limited. Given rates are ultimately proportional to prices, other numbers are as important.
I would suspect numbers would show even a much more restrained increase in rates today on an averaged mortgaged property value for an average earner would have a much more serious impact on household finances in relative terms vs 1970s. In which case it may be accurate to say the average mortgaged person in 2022 would have a tougher time of it financially on lets say 5-7.5% rates than someone in the 70s on 15% rates. A 40 year disinflation cycle that followed this period with the low starting property prices was phenomenal for anyone that survived; paid dividends literally several times over. An inflation cycle today based on high prices is going to be brutal in comparison.
I would suspect numbers would show even a much more restrained increase in rates today on an averaged mortgaged property value for an average earner would have a much more serious impact on household finances in relative terms vs 1970s. In which case it may be accurate to say the average mortgaged person in 2022 would have a tougher time of it financially on lets say 5-7.5% rates than someone in the 70s on 15% rates. A 40 year disinflation cycle that followed this period with the low starting property prices was phenomenal for anyone that survived; paid dividends literally several times over. An inflation cycle today based on high prices is going to be brutal in comparison.
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- Original Poster
- #223
It might just be fluke then, but back in March 2020 many of us predicted huge inflation once all the borrowed money (which, most significantly, was not spent on anything productive) had been assimilated into the economy and with little available to spend it on because the economy had been far less productive (to a greater or lesser extent) for the best part of two years.
Even worse the BofE have not got the nerve to increase the interest rates.
Can't think why that little lot would be a recipe for inflation.....
As this thread reveals my suppliers were putting their prices through the roof from early 2021, the war in Ukraine has not caused it, it has just turbocharged it.
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- Original Poster
- #224
Technically is was not Covid, it was the generalised suppression policy, that is a very important distinction.
The current inflation disaster is nor just down to Covid, but, in my view, it is the biggest driver. The Ukraine war has just made it even worse.
I agree with your last sentence, unfortunately.
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- Original Poster
- #225
I have just been reading an article in Monday's Times by Paul Johnson (from the Institute for Fiscal Studies, often rolled out by the media to give his penn'orth) and was astonished for him to admit :
"Look back at official forecasts from one year ago, for the UK and every other advanced economy, and none were even close to forecasting our current predicament" [to be fair to him he does go on to acknowledge that this is largely not down to Ukraine - so he's right there at least]
Really ?
Many of us "non experts" have been repeatedly predicting this since March 2020, and even more so since early 2021.
"Look back at official forecasts from one year ago, for the UK and every other advanced economy, and none were even close to forecasting our current predicament" [to be fair to him he does go on to acknowledge that this is largely not down to Ukraine - so he's right there at least]
Really ?
Many of us "non experts" have been repeatedly predicting this since March 2020, and even more so since early 2021.
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Nostradamus predicted all sorts years and years before you did, oh and his are becoming more and more accurate as time marches on. In Nostradamus terms your a predictive lightweight
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Unfortunately latest news is looking like oil is about to be poured onto the fire so to speak, I thought the energy one off payments were issued extremely quickly previously, the latest information probably helps explain why.
The average household cost for Gas and Electric rising by 65%, after the previous huge increases before. If the UK has a bad winter this will be enough to potentially cause riots.
Bear in mind only about 2020 that the price cap was around £1300 pa.
The new prediction is the energy price cap will rise by 65% in October (to £3,244/year on typical use)
The average household cost for Gas and Electric rising by 65%, after the previous huge increases before. If the UK has a bad winter this will be enough to potentially cause riots.
Bear in mind only about 2020 that the price cap was around £1300 pa.
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The average cost for a holiday for a family of 4 is £4,792 plus £225 a week spending money. Maybe cut back on the holiday till things settle down? I am not happy at the increases, but drastic times call for drastic solutions. I haven't decided who to blame for this state of affairs yet but Its looking like President Nixon and fiat currency may be at fault.
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Scratch cards? Lottery Tickets? Designer nonsense.... I know how tough life can be, I lived in the back of a van and had absolutely fxxxall and no support system. Im just quoting numbers. The poorest sections of society are going to have a really tough time, but there again, they have been having a tough time for quite a while already.
We are being told that the future is unsustainable because of rises in energy costs, we have basic human needs which dont include going on holiday as far as Im concerned.
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But why...
Why do we have to accept less, every few years, rising taxes, rising fuel costs, less money to spend on the little bit of enjoyment people are allowed. No summer holiday then? Just more work? More slaving away..why?
In the 70s people said we would be working less, not more. Now people are saying if you work 2 jobs that's not enough, you should work 3. Weekends? Those are to work, you should be happy to work, forever.
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My careers teacher told my class by now everyone would be working part time, and the big problem would be how to fill all those leisure hours, many people would be job sharing.
He went on to say forget getting a trade, go into office administration call centre type work, that was the future to making good money, why do a messy dirty job like being a mechanic?
What an idiot, more fool to the many who listened to him.
I think people have to accept there is a limit to so called standard of living increasing. Personally I think most people see things the wrong way. In my youth one parent could support a family of four if they were in a 9 to 5 job.
Today, a 9 to 5 job rarely exists that can support a single person, yet the elite tell people they are better off. Quite what the effect of automation on the overall workforce will be in the next two decades is anyone’s guess.
The whole world needs to start more local manufacturing, actually building things that are truly required. A roof over your head, well fed, warm and clothed. You do not need much else in life.
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I dont accept less. But I have had to make sacrifices to get to the position I am in now. I dont worry about money or bills but I am fortunate that I have lived well within my means for the last 10 years. I havent had a holiday for the last 20 years because for the first 10 years I couldnt afford one and the last 10 years I didnt want one,, no other reason.
Life is about compromise, sometimes you cant have both, no matter how much you think you deserve them. My grandad worked down a pit in the first half of the last century, if anyone deserved a holiday it was definitely him, but he could barely afford to put food on the table etc etc. We dont know we're born.
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How Much Do People Spend On Holiday? | Evolution Money
Thinking Of Going On A Holiday? We Know That They Can be Expensive! Here Are Some Examples Of Where The Money Tends To Get Spent When You're Abroad.
www.evolutionmoney.co.uk
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Not sure this is accurate.
My holiday next year, already booked, for myself and four other family members to Madeira, two weeks at the height of August due to two people having to go during school holidays, is £1200 per head. That’s flights, food, transfers, very luxurious private villa for ten people, inc spending money, for two weeks. It also includes a couple of trips.
I would put the holiday I arranged at double the quality of an “average” one, when you take out of season holidays etc that amount should be a fair bit lower. I’m good at getting deals, but not that good.
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I dont know if it is accurate or not, its the figures I found when I googled the question. The average salary for someone working full time in the UK is £31,447, well not where I live it isnt. (2019 figures £24,000) Your figures show £4,800, thats not far off is it?
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