2011 - The Year of Inflation
Discussion
I guess with the end of 2010 just around the corner, a year of ultra low rates, hidden inflation etc etc it is time to start guessing what 2011 holds for us.
Corporate America has been recovering well, the EU has survived the year and the UK corporate picture is actually better than many think.
We have certainly had strong underlying inflation this year in key areas such as utilities, taxes, food stuffs and most general living expenses. We have also had the printing presses running most of the year devaluing the GBP and pumping liquidity into the economy.
The point is that everyone knows that at some point in the future we will be paying for all of this.
The Govt would love for rates to stay low for as long as possible so as to help inflate away more of our general debt and to buy time for the many households who over borrowed to get their debt under control.
However, there is the clear possibility that unmistakeable inflation will appear next year that makes it impossible for the B of E to maintain the low rate policy.
There is no doubt in my mind that we have sown the seeds of massive inflationary pressures by trying to borrow our way out of the recession and that when inflation does come to the surface it will be rampant.
Rampant inflation can be dealth with marginally by cutting welfare and the public sector but the reality is that the private sector growth will be too much for these small controls and the only tool available is interest rates.
To get inflation under control there will have to be some strong and sharp rises in rates, no drip feeding of small rises as they will be absorbed.
At this point, what value does gold have in an inflationary environment?
What happens to all those who cannot manage their debt?
What happens to property values?
I guess the real key is not whether there will be strong inflation as this is a given, but whether it will rear its head in 2011?
Corporate America has been recovering well, the EU has survived the year and the UK corporate picture is actually better than many think.
We have certainly had strong underlying inflation this year in key areas such as utilities, taxes, food stuffs and most general living expenses. We have also had the printing presses running most of the year devaluing the GBP and pumping liquidity into the economy.
The point is that everyone knows that at some point in the future we will be paying for all of this.
The Govt would love for rates to stay low for as long as possible so as to help inflate away more of our general debt and to buy time for the many households who over borrowed to get their debt under control.
However, there is the clear possibility that unmistakeable inflation will appear next year that makes it impossible for the B of E to maintain the low rate policy.
There is no doubt in my mind that we have sown the seeds of massive inflationary pressures by trying to borrow our way out of the recession and that when inflation does come to the surface it will be rampant.
Rampant inflation can be dealth with marginally by cutting welfare and the public sector but the reality is that the private sector growth will be too much for these small controls and the only tool available is interest rates.
To get inflation under control there will have to be some strong and sharp rises in rates, no drip feeding of small rises as they will be absorbed.
At this point, what value does gold have in an inflationary environment?
What happens to all those who cannot manage their debt?
What happens to property values?
I guess the real key is not whether there will be strong inflation as this is a given, but whether it will rear its head in 2011?
DonkeyApple said:
What happens to all those who cannot manage their debt?
What happens to property values?
I guess the real key is not whether there will be strong inflation as this is a given, but whether it will rear its head in 2011?
I think the two points you raise there will be key.What happens to property values?
I guess the real key is not whether there will be strong inflation as this is a given, but whether it will rear its head in 2011?
People don't react well to having their houses repossessed en masse or their (remortgaged) 'Half million pound' house worth tuppence.
That, more than anything is what I believe the government is hoping to avoid.
They're using QE, inflation and currency devaluation to stave off disaster and hoping it's sufficient.
Whether it is or not is anyone's guess.
DullBoy said:
why is it impossible for the BoE Mervin King to keep interest rates as low in 2011? he's managed it so far.
Indeed, but as we saw from the data today we have strong inflation already (RPI 4.7%) and really, the B of E should have been raising rates earlier this year to maintain inflation within it's parameters of 2%.The longer we leave inflation unchecked the stronger it will get and the poorer the people will become.
Raising rates is the only real way to control inflation and if they leave it too late then they'll have to take rates up and well over 10% to bring inflation under control. At that point it is game over for the UK.
They have no choice but to start making modest increases and to start getting inflation under control.
What will be delaying it at present is that fact that much of the inflationary items we see at present are external and necessities and so us raising rates won't effect either the price or the demand.
This is why 2011 could be the crux year.
Energy and transportation (fuel) prices are driving inflation on just about every aspect of normal life. 30% on energy, 30% on fuel over a short period gets us where we are today.
It certainly ain't wages!
They need to cut fuel duty and clamp down on the profits made by the energy companies whilst constantly raising prices to the consumer. I know... we need the tax revenue, private companies, shareholders to please, but these are tough times, and drastic measures are called for as average Joe tries to get through them without losing everything.
It certainly ain't wages!
They need to cut fuel duty and clamp down on the profits made by the energy companies whilst constantly raising prices to the consumer. I know... we need the tax revenue, private companies, shareholders to please, but these are tough times, and drastic measures are called for as average Joe tries to get through them without losing everything.
Edited by SeeFive on Tuesday 14th December 15:24
chimster said:
Remind me again which inflation figure we use for the 4.7% and what does it include?
Edit just read the RPI bit
According to this, if the cost of lubricants hadn't fallen then the numbers would have been worse. Edit just read the RPI bit
Edited by chimster on Tuesday 14th December 15:23
CPI annual inflation – the Government’s target measure – was 3.3 per cent in November, up from 3.2 per cent in October.
The largest upward pressures to the change in CPI inflation came from:
food and non-alcoholic drinks where prices rose by a record 1.6 per cent for an October to November period. This compares with a 0.6 per cent rise a year ago. The upward effects were widespread with the most significant coming from bread and cereals and meat. Bread and cereal prices, overall, rose by 1.9 per cent between October and November this year, the largest rise for an October to November period since 2007. The upward effects included wheat related products such as flour and breakfast cereals. Meat prices rose by 1.0 per cent on the month, the largest rise for October to November since 2005, with the main effect coming from poultry. Partially offsetting these upward pressures was a large downward effect from fruit where prices rose between October and November but by less than the record 11.7 per cent a year ago
clothing and footwear where prices, overall, rose by 2.0 per cent on the month (a record for an October to November period) compared with a rise of 0.6 per cent a year ago. The main upward pressure came from garments, particularly men’s outerwear
furniture, household equipment and maintenance, also showing a record price rise, overall, for an October to November period, of 1.6 per cent. The largest upward effects came from furniture and furnishings, and major appliances and small electric goods
The largest downward pressure to the change in CPI inflation came from:
air transport where fares fell by 6.4 per cent between October and November this year compared with a fall of
2.6 per cent a year ago. The largest downward effect came from European routes though long-haul and domestic routes also showed downward movements
fuels and lubricants where prices, overall, rose by 1.6 per cent between October and November this year compared with 2.8 per cent a year ago, principally reflecting a rise of 1.8 pence per litre in petrol prices this year compared with a rise of 2.9 pence per litre a year ago
recreation and culture where prices, overall, fell by 0.2 per cent this year but rose by 0.2 per cent a year ago. The main downward effects came from games, toys and hobbies, and package holidays
In the year to November, RPI annual inflation was 4.7 per cent, up from 4.5 per cent in October. The main factors affecting the CPI also affected the RPI.
RPIX inflation – the all items RPI excluding mortgage interest payments – was also 4.7 per cent in November, up from 4.6 per cent in October.
As an internationally comparable measure of inflation, the CPI shows that the UK inflation rate in October was above the provisional figure for the European Union. The UK rate was
3.2 per cent whereas the EU’s as a whole was 2.3 per cent.
The next publication date is 18 January 2011.
Part of our business trades rubber tracks for mini diggers: http://www.digbits.co.uk/rubber_tracks.htm
We've been in this market for donkey's years (apologies to the OP for that one) and have never seen such strong rises on the cards - from all factories - as now. We buy from a number of sources, with factories for various items located all over the Far East - Sri Lanka, South Korea, Vietnam, China etc. - and all are talking rises.
The prime driver is the commodity spike for natural rubber - a key ingredient - but also labour costs and the price of steel (for the reinforcing core wires and the metal inserts) are having an effect. We have bought ahead but know prices will be rising by 10 to 20 pc. That is a huge hike.
If this translates into other rubber produce then, on it's own, it will have a pretty substantial effect, if it's the only price hike, but it's not.
We've been in this market for donkey's years (apologies to the OP for that one) and have never seen such strong rises on the cards - from all factories - as now. We buy from a number of sources, with factories for various items located all over the Far East - Sri Lanka, South Korea, Vietnam, China etc. - and all are talking rises.
The prime driver is the commodity spike for natural rubber - a key ingredient - but also labour costs and the price of steel (for the reinforcing core wires and the metal inserts) are having an effect. We have bought ahead but know prices will be rising by 10 to 20 pc. That is a huge hike.
If this translates into other rubber produce then, on it's own, it will have a pretty substantial effect, if it's the only price hike, but it's not.
If inflation is being driven by items such as fuel, non alcoholic drinks, bread and cereals, clothing, footwear and furniture, can someone please explain to me what the use is in raising interest rates?
I don’t understand how raising interest rates will reduce demand for these items as they are essential to everyday life.
It's not as if people will take the attitude of buying less bread, orange juice and coffee this year and walk the 25 miles to work instead of driving to save petrol.
I don’t understand how raising interest rates will reduce demand for these items as they are essential to everyday life.
It's not as if people will take the attitude of buying less bread, orange juice and coffee this year and walk the 25 miles to work instead of driving to save petrol.
allgonepetetong said:
If inflation is being driven by items such as fuel, non alcoholic drinks, bread and cereals, clothing, footwear and furniture, can someone please explain to me what the use is in raising interest rates?
I don’t understand how raising interest rates will reduce demand for these items as they are essential to everyday life.
It's not as if people will take the attitude of buying less bread, orange juice and coffee this year and walk the 25 miles to work instead of driving to save petrol.
AS you say, raising rates will reduce only tyhe marginal element of demand - subsistance will likely remain constant.I don’t understand how raising interest rates will reduce demand for these items as they are essential to everyday life.
It's not as if people will take the attitude of buying less bread, orange juice and coffee this year and walk the 25 miles to work instead of driving to save petrol.
If some of the inflation is 'imported', then raising rates help because it strengthens sterling's relative position to other currencies and thereby helps smooth out some of these risees. however, in so doing you also clobber British exportede who are on the other side of the exchange deal.
DS3R said:
Captain Cadillac said:
Look at precious metal prices. That is all
Err, in terms of what exactly?At exceptional highs - well gold anyway, not that I 'follow' precious metals much - wouldn't seem a good hedge against inflation. Or do I have the argument arse about face?
DullBoy said:
DS3R said:
Captain Cadillac said:
Look at precious metal prices. That is all
Err, in terms of what exactly?So I can look for gold rings, but I can also look at the hysteria & potential bubble caused by idiots who are no longer interested in getting rich quick with new build flats and are instead piling their money in to this...
?
DS3R said:
DullBoy said:
DS3R said:
Captain Cadillac said:
Look at precious metal prices. That is all
Err, in terms of what exactly?So I can look for gold rings, but I can also look at the hysteria & potential bubble caused by idiots who are no longer interested in getting rich quick with new build flats and are instead piling their money in to this...
?
DonkeyApple. Stuff.
Many thanks for that. As a retailer the last 4 wks have been 'difficult' :-). Can't see any inflation in our selling prices..... Presumably the impact of those figs will be incorporated into the next set of numbers.
Many thanks for that. As a retailer the last 4 wks have been 'difficult' :-). Can't see any inflation in our selling prices..... Presumably the impact of those figs will be incorporated into the next set of numbers.
Edited by chimster on Tuesday 14th December 16:27
Edited by chimster on Tuesday 14th December 16:27
Fittster said:
DS3R said:
DullBoy said:
DS3R said:
Captain Cadillac said:
Look at precious metal prices. That is all
Err, in terms of what exactly?So I can look for gold rings, but I can also look at the hysteria & potential bubble caused by idiots who are no longer interested in getting rich quick with new build flats and are instead piling their money in to this...
?
Taking rubber (talking about somethin I actually know about for a change
) the current price is driven by a number of factors:- Poor harvest in Tailand and Malaysia due to heavy rains.
- Exceptionally high demand, especially from China which now takes over 30% of global production.
- Long lead-time for supply; plantations take 5 to 7 years to first yield.
I'm guessing the above could be said for a number of mined commodities too?
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