Inflation

[Digga]

It's coming, I can smell it a mile off.

With sterling long enough down the pan it's somewhere near the cost of France by now, little hope of forex rates imporving and our high dependance on imported stuff, how long before the cost of living starts to shift up?

[quotemehappy]

You muse be joking right probably going to be <1% before the year is up.

[dougc]

Deflation first, then quantative easing leading to inflation and interest rates following closely behind.

[Digga]

quotemehappy said:

You muse be joking right probably going to be <1% before the year is up.

Err nope.

Pound's dropped against the Euro and the Dollar - the two key import currencies. We have two German component supplilers who are already having to impose 10+% increases because of the prolonged drop in sterling.

Cheap clothes, German cars, electrical goods - where d'you think they come from and what margins d'you think the dealers/retailers are making that they can absorb the price hikes?

Edited by Digga on Wednesday 28th January 14:12

[fido]

Digga said:

German cars, electrical goods

we'll stop buying them in such large quantities, or they'll have to lower profits from such products,
but yep a bit stuck for alternatives in the case of clothing and foods.

Edited by fido on Wednesday 28th January 13:40

[Crusoe]

At the end of the financial year in April they are expecting all the cheap goods from Asia and the far east (electonics, clothes etc.) to increase by around 40% when the contracts are renegotiated, most of that will be passed on to the end purchaser.

[MitchT]

Digga said:

...how long before the cost of living starts to shift up?

Um... several years ago in my experience.

[Pork]

MitchT said:

Digga said:

...how long before the cost of living starts to shift up?

Um... several years ago in my experience.

I'm with Mitch. Cant remeber the last time a bought a loaf of bread for less than a quid.

[Digga]

fido said:

Digga said:

German cars, electrical goods

we'll stop buying them in such large quantities, or they'll have to lower profits from such products,
but yep a bit stuck for alternatives in the case of clothing and foods.

People deciding they cannot afford a product does not change the fact that it's price has inflated. As I said already, I doubt whether margins will enable cost increases to be absorbed.

[revrange]

Inflation will be pretty much dead for the next 6 months unless oil shock or something extreme happens.
The forces pushing prices down are too great, go down the high street everything is X% off.
If current projections of the economy are right inflation will be back, and in a big way in say 18 months time
But then no one predicted the current mess so...

[215cu]

If no-one is buying, the price of imports can rise all it likes, it will not feed through as inflation whilst aggregate demand remains so weak. Exporters will benefit but it's a crowded market of suppressed demand, at least they should have a fighting chance of remaining competitive.

Also, retailer heavy discounting has further depressed prices and margins. No chance of price hikes on the High Street.

Manufacturers also have gone on short hours, plenty of capacity so marginal costs of manufacture are zero.

Commodities and raw materials have also slumped in price so have producer prices. Oil is well off its price peaks purely down to demand. This fact alone seems to have been missed my almost everyone, household disposable incomes are actually rising off the back of it as energy and food bills come down. This might encourage some demand, however, people will be paying off debt - not exactly a bad thing either.

IF interest rates hit zero, the BoE is far more likely to use any 'quantative easing' to buy up debt.

This is unlikely to release huge quantities of money in circulation and stoke inflation.

Now IF that doesn't work, they might put more money in circulation, that would start to add inflationary pressure but by then that would be positively welcomed would be in a deflationary cycle.

Imagine a world where the money you owe gets ever larger despite making the repayments?

Although fantastic if you have cash to spend because the price of goods will get ever cheaper.

[fido]

Digga said:

People deciding they cannot afford a product does not change the fact that it's price has inflated. As I said already, I doubt whether margins will enable cost increases to be absorbed.

Nope, but inflation is measured against a [weighted] basket of goods, and luxury goods will become a smaller proportion of expenditure (which i assume is what you were alluding to with German cars .. unless you meant VW Polos); also more expensive products can be substituted with a cheaper alternative if they are available - hence more people shopping in LIDL and driving round in sh8gged out cars (with one headlight).

Edited by fido because he's come back from the pub and can't type properly

Edited by fido on Wednesday 28th January 14:07

[Digga]

I'm baffled by a lot of the responses so far.

GBP/EUR:


GBP/USD:


How can goods imported from any of these currency zones - and don't forget most of the cheapo far Eastern products are based on USD - continue to be offered at the same prices?

Edited by Digga on Wednesday 28th January 14:18

[jesusbuiltmycar]

Digga said:

quotemehappy said:

You muse be joking right probably going to be <1% before the year is up.

Err nope.

Pound's dropped against the Euro and the Dollar - the two key import currencies. We have two German component supplilers who are already having to impose 10+% increases because of teh prolonged drop in sterling.

Cheap clothes, German cars, electrical goods - where d'you think they come from and what margins d'you think the dealers/retailers are making that they can absorb the price hikes?

Canon announced that due to the weekness of Sterling against the yen their prices are going up 10% (and 5% in Europe).

Sony also announced last week that they too will have to put up prices in the UK...

I guess that before the years out all imported goods will go up as a result of sterlings fall. Importers & retaillers may swallow some of this loss but somehow I doubt it...

Next year the cut in VAT ends that will also push up inflation by 2.5%...

Edited by jesusbuiltmycar on Wednesday 28th January 14:11

[RichardD]

Digga said:

...How can goods imported from any of these currency zones - and don't forget most of the cheapo far Eastern products are based on USD - continue to be offered at the same prices?

What about comparing the GBP and EUR against prices of imported European cars? In that instance I expect that the Europeans knew that the pound was overinflated in value and were profiteering from it (ie making more profit than would be normally expected).

Currently IMHO they are lumping the exchange rate as they are worried about loosing sales if they raised prices and also hoping that the pound increases in value so their profits can too...

[johnnywb]

I would agree. Imports from the US and from the Eurozone are now significantly more expensive. This will be passed on to the end consumer and will result in inflation. The only question mark is over the price of fuel. The price of many goods, food as an example, went up when fuel went up last time. Fuel has now come down, but prices are high. This would suggest there is a margin there, but i doubt it will be enough to prevent price rises across the board.

[RichardD]

fido said:

people shopping in LIDL and driving round in sh8gged out cars (with one headlight)....

Its ALDI actually and the wobbly headlight was fixed before the last MOT !

Sorry, O/T but couldn't resist

Edited by RichardD on Wednesday 28th January 14:19

[Digga]

RichardD said:

Digga said:

...How can goods imported from any of these currency zones - and don't forget most of the cheapo far Eastern products are based on USD - continue to be offered at the same prices?

What about comparing the GBP and EUR against prices of imported European cars? In that instance I expect that the Europeans knew that the pound was overinflated in value and were profiteering from it (ie making more profit than would be normally expected).

Currently IMHO they are lumping the exchange rate as they are worried about loosing sales if they raised prices and also hoping that the pound increases in value so their profits can too...

I think you will find that, for some years now, since the EU intervened with block exemption regualtions, that the price of cars throughout the whole EU (UK included) has been largely comparable.

Edited by Digga on Wednesday 28th January 14:21

Edited by Digga on Wednesday 28th January 14:27

[ianash]

I think so many people have bought so many inported consumer goods over the last few years that it will be no hardship to forgo a new LCD or other newly high priced gizmo. I think inflation will come as per usual due to the Govt hand on the printing press. But not in 09 though.

[Digga]

There are a lot of misconceptions being voiced. Let's clear them up:

1.) Inflations figures are calculated on the prices of a 'basket' of goods. The inflation figure is calculated on the prices of those goods, irrespective of whether consumers are prepared to buy at that price. CPI Basket (see page 3 (41))

2.) We're not just talking about cars and electrical goods. When was the last time you drove past a tea, coffee or rubber plantation in the UK. Where are the orange groves that supply the supermarkets? Where are you're clothes made - the ones that your mum didn't knit.