Discussion
Would someone like to explain inflation for me.
We are told inflation is a world wide thing due to shortages of containers, chips and gas. So why is the UK inflation rate 2.9% in France compared to 5.4% in UK and 1.5% in Switzerland. While in the USA it is 7% and in Canada 4.8%. Japan has a rate of 0.8%?
We are told inflation is a world wide thing due to shortages of containers, chips and gas. So why is the UK inflation rate 2.9% in France compared to 5.4% in UK and 1.5% in Switzerland. While in the USA it is 7% and in Canada 4.8%. Japan has a rate of 0.8%?
At the most basic level, more money chasing the same amount of goods and services. In a very simple economy like a boat where sailors exchange tokens for goods it's obvious that printing more tokens won't produce any more food, cigarettes, magazines etc that they might wish to trade. In a large and complex economy like the UK it can take longer to filter through and come out in less predictable ways, but the same basic principle applies. This has the effect of devaluing the money already in circulation
There are arguments for doing this to encourage money to circulate, distribute it more effectively and raise public finance without extra direct taxes.
The spending splurge of the last 2 years has involved printing a shed load of money to make people feel better about producing less, distributed in a fairly arbitrary manner.
There are arguments for doing this to encourage money to circulate, distribute it more effectively and raise public finance without extra direct taxes.
The spending splurge of the last 2 years has involved printing a shed load of money to make people feel better about producing less, distributed in a fairly arbitrary manner.
JuanCarlosFandango said:
At the most basic level, more money chasing the same amount of goods and services. In a very simple economy like a boat where sailors exchange tokens for goods it's obvious that printing more tokens won't produce any more food, cigarettes, magazines etc that they might wish to trade. In a large and complex economy like the UK it can take longer to filter through and come out in less predictable ways, but the same basic principle applies. This has the effect of devaluing the money already in circulation
There are arguments for doing this to encourage money to circulate, distribute it more effectively and raise public finance without extra direct taxes.
The spending splurge of the last 2 years has involved printing a shed load of money to make people feel better about producing less, distributed in a fairly arbitrary manner.
and just to expand on this similar actions after the Financial crisis did not result in significant inflation in goods and services though it DID create an asset price bubble. There then grew up an entire body of There are arguments for doing this to encourage money to circulate, distribute it more effectively and raise public finance without extra direct taxes.
The spending splurge of the last 2 years has involved printing a shed load of money to make people feel better about producing less, distributed in a fairly arbitrary manner.
This ignored the fact that there were exceptional circumstances at the time of the financial crisis, including strong deflationary pressures and spare capacity and that what applied then would not necessarily apply when one of the issues was supply being artificially constrained.
Ambrose Evans-Pritchard had a good article on this back before inflation really took off. This was expected by those sufficiently knowledgeable who did not succumb to wishful thinking.
Also depends how each country works it out - shopping baskets will vary.
Take out rice and pasta and replace with M&S Dine in for Two and the figures look much better.
https://twitter.com/bootstrapcook/status/148377877...
Take out rice and pasta and replace with M&S Dine in for Two and the figures look much better.
https://twitter.com/bootstrapcook/status/148377877...
Indeed.
All with the added fun factor that while the theoretical case for this usually assumes an economy with balanced public finances and long term growth, neither are really a given in the UK. We have run a deficit since the early 2000s and a lot if not all "growth" seems to have come from asset bubbles and government spending.
All with the added fun factor that while the theoretical case for this usually assumes an economy with balanced public finances and long term growth, neither are really a given in the UK. We have run a deficit since the early 2000s and a lot if not all "growth" seems to have come from asset bubbles and government spending.
Take USA as an example with circa 7.5% inflation. As the CPI has been manipulated over time from a COGI (cost of goods index) to the COLI (cost of living index) which accounts for substitutions, variations in basket goods and average weights etc this results in a lower % of inflation than the reality.
There have been many revisions to how inflation is calculated over the years and many flaws within the methodology, for example, the CPI does not include the increases in housing costs over time. Rent approximations are determined by polling homeowners, not necessarily renters, about the theoretical rentable cost of their property, which is always lower than the current market as they are simply out of touch. All this means that if we were to calculate inflation using the methods of say, 1980 or late 90s, we would see the current 7% in the US at something more like 12%.
We have now entered into a dangerous phase of cost push inflation which cannot be fought off by governments with the usual tools.
It will be interesting to see what happens as the world drifts uncontrollably away form the desired healthy 2-3% demand driven inflation rate.
There have been many revisions to how inflation is calculated over the years and many flaws within the methodology, for example, the CPI does not include the increases in housing costs over time. Rent approximations are determined by polling homeowners, not necessarily renters, about the theoretical rentable cost of their property, which is always lower than the current market as they are simply out of touch. All this means that if we were to calculate inflation using the methods of say, 1980 or late 90s, we would see the current 7% in the US at something more like 12%.
We have now entered into a dangerous phase of cost push inflation which cannot be fought off by governments with the usual tools.
It will be interesting to see what happens as the world drifts uncontrollably away form the desired healthy 2-3% demand driven inflation rate.
JuanCarlosFandango said:
Indeed.
All with the added fun factor that while the theoretical case for this usually assumes an economy with balanced public finances and long term growth, neither are really a given in the UK. We have run a deficit since the early 2000s and a lot if not all "growth" seems to have come from asset bubbles and government spending.
Yeah it irks that after the GFC, balancing the budget and economics were all that we talked about... until we didn't. We still haven't recovered from '08, we just kicked the can down the road. All with the added fun factor that while the theoretical case for this usually assumes an economy with balanced public finances and long term growth, neither are really a given in the UK. We have run a deficit since the early 2000s and a lot if not all "growth" seems to have come from asset bubbles and government spending.
glazbagun said:
Yeah it irks that after the GFC, balancing the budget and economics were all that we talked about... until we didn't. We still haven't recovered from '08, we just kicked the can down the road.
We (the world) effectively put it on the credit card. QE;d the s
t out of broken economies and inflated the assets to pay for it at some stage in the future while still reducing interest rates and making money cheaper to borrow than at any time.Gassing Station | News, Politics & Economics | Top of Page | What's New | My Stuff