Negative Interest
Discussion
leef44 said:
NickCQ said:
GrizzlyBear said:
have a look how they calculate inflation, it is shocking
Shocking how?This ensure that inflation is maintained at a stable steady level and artificially kept low. State pensions are amongst costs which are inflated based on the statistic. If those "outliers" were kept in the basket then budget deficit would be much higher. Clever political manipulation.
If the price of potatoes, say, went up 10-fold, you would buy fewer potatoes and more rice. So, in practice, your basket of goods wouldn’t go up by as much as the increase in potato prices would suggest because you would buy fewer potatoes.
Zigster said:
Wouldn’t that just reflect the substitution effect?
If the price of potatoes, say, went up 10-fold, you would buy fewer potatoes and more rice. So, in practice, your basket of goods wouldn’t go up by as much as the increase in potato prices would suggest because you would buy fewer potatoes.
That's a good point. I didn't think of that and indeed that is relevant because by being an outlier it has to be a more optional/discretionary purchase item so should be easily substituted.If the price of potatoes, say, went up 10-fold, you would buy fewer potatoes and more rice. So, in practice, your basket of goods wouldn’t go up by as much as the increase in potato prices would suggest because you would buy fewer potatoes.
leef44 said:
The basket of items which make up inflation are reviewed periodically. When something goes up quite high compared to other items then it is considered an outlier. As such, that outlier cannot be representative of a sample so the outlier is removed from the basket.
This ensure that inflation is maintained at a stable steady level and artificially kept low. State pensions are amongst costs which are inflated based on the statistic. If those "outliers" were kept in the basket then budget deficit would be much higher. Clever political manipulation.
Any evidence for that?This ensure that inflation is maintained at a stable steady level and artificially kept low. State pensions are amongst costs which are inflated based on the statistic. If those "outliers" were kept in the basket then budget deficit would be much higher. Clever political manipulation.
The weights are calculated using a huge dataset of what people actually spend their money on. The model is public, if you are convinced there is a conspiracy you should be able to find it in there.
leef44 said:
Zigster said:
Wouldn’t that just reflect the substitution effect?
If the price of potatoes, say, went up 10-fold, you would buy fewer potatoes and more rice. So, in practice, your basket of goods wouldn’t go up by as much as the increase in potato prices would suggest because you would buy fewer potatoes.
That's a good point. I didn't think of that and indeed that is relevant because by being an outlier it has to be a more optional/discretionary purchase item so should be easily substituted.If the price of potatoes, say, went up 10-fold, you would buy fewer potatoes and more rice. So, in practice, your basket of goods wouldn’t go up by as much as the increase in potato prices would suggest because you would buy fewer potatoes.
In true PH style your meant to either ignore or obfuscate then start with personal attacks, what is the world coming to eh ?
Wouldn't the switch to Rice create a increase demand there and then possible supply issues and therefore Rice prices would creep up?
If that happened might they switch to Bread in the basket. What then if they a year later when potatoes and rice production has recovered and no longer is going up they switch to that and away from the now rising <sic> Bread?
If you switched between them all and called each ones big increase period an outlier, then in 10 years when they've all gone up 'x', over those 10 years your basket would have gone up by 'X-something'.
I'm not saying they do this or even if it's happened but I can see this happening if you switch around. (can anyone think of something that turned expensive for a time and then came back down!?
If that happened might they switch to Bread in the basket. What then if they a year later when potatoes and rice production has recovered and no longer is going up they switch to that and away from the now rising <sic> Bread?
If you switched between them all and called each ones big increase period an outlier, then in 10 years when they've all gone up 'x', over those 10 years your basket would have gone up by 'X-something'.
I'm not saying they do this or even if it's happened but I can see this happening if you switch around. (can anyone think of something that turned expensive for a time and then came back down!?
That’s basically what does happen - the basket of goods on which the inflation index is based changes frequently. Bear in mind there are hundreds of goods in the various indices so changing a few here and there is more of a refinement than a fundamental shift.
Spending patterns do change over time - go back 20 years and I think VCR players were still in the index but were soon after removed because no one as buying them any more.
For reasons related to my job, I’ve become a bit of an inflation nerd over the last few years.
The ONS has a good primer on RPI and CPI which explains how, in my opinion, the geometric mean used by the CPI reflects substitution effects better than the RPI which uses an arithmetic mean.
Spending patterns do change over time - go back 20 years and I think VCR players were still in the index but were soon after removed because no one as buying them any more.
For reasons related to my job, I’ve become a bit of an inflation nerd over the last few years.
The ONS has a good primer on RPI and CPI which explains how, in my opinion, the geometric mean used by the CPI reflects substitution effects better than the RPI which uses an arithmetic mean.
Zigster said:
That’s basically what does happen - the basket of goods on which the inflation index is based changes frequently. Bear in mind there are hundreds of goods in the various indices so changing a few here and there is more of a refinement than a fundamental shift.
Spending patterns do change over time - go back 20 years and I think VCR players were still in the index but were soon after removed because no one as buying them any more.
For reasons related to my job, I’ve become a bit of an inflation nerd over the last few years.
The ONS has a good primer on RPI and CPI which explains how, in my opinion, the geometric mean used by the CPI reflects substitution effects better than the RPI which uses an arithmetic mean.
Yes that doesn't really work for the Asian population whose staple diet is rice. They don't suddenly switch to eating bread.Spending patterns do change over time - go back 20 years and I think VCR players were still in the index but were soon after removed because no one as buying them any more.
For reasons related to my job, I’ve become a bit of an inflation nerd over the last few years.
The ONS has a good primer on RPI and CPI which explains how, in my opinion, the geometric mean used by the CPI reflects substitution effects better than the RPI which uses an arithmetic mean.
Same for those who always eat sandwiches. They don't suddenly switch to chicken curry with rice.
These are not luxury items but basic essentials so the fact that these can fall out of the basket as prices increases reduces the suitability of these inflation baskets.
The weights for each item reflect what is actually purchased. If there was an Asian-specific inflation measure then rice might continue to form a large part of the inflation index rather than switching to bread.
No inflation measure is perfect for everyone. There had been talk about creating pensioner-specific inflation indices for example (more Werther’s Originals, fewer video games
) but even that wouldn’t be right for those pensioners who play a lot of video games.
CPI almost certainly doesn’t reflect my personal inflation experience, but it it is a reasonable reflection of the average inflation experience across the UK.
No inflation measure is perfect for everyone. There had been talk about creating pensioner-specific inflation indices for example (more Werther’s Originals, fewer video games
) but even that wouldn’t be right for those pensioners who play a lot of video games.CPI almost certainly doesn’t reflect my personal inflation experience, but it it is a reasonable reflection of the average inflation experience across the UK.
leef44 said:
NickCQ said:
GrizzlyBear said:
have a look how they calculate inflation, it is shocking
Shocking how?This ensure that inflation is maintained at a stable steady level and artificially kept low. State pensions are amongst costs which are inflated based on the statistic. If those "outliers" were kept in the basket then budget deficit would be much higher. Clever political manipulation.
maz8062 said:
I'm moving into high capacity mattress futures.... 
"In Denmark, borrowers have been offered mortgages with negative interest rates. Mortgage customers with Jyske Bank were lent money at a rate of -0.5%, which meant the sum they owed fell each month by more than the sum they had repaid. There is no reason why UK lenders could not follow suit."
I think my head just melted...
I think my head just melted...
In April 2020 I predicted negative interest ‘in probably less than a year’. So looks like I’m a few months out on that one.
It seems like such a crazy upside-down idea, that you would have to pay someone to hold your money for you, but in reality it’s nowhere near as bats
t crazy as QE. Selling government bonds that have to be bought back, borrowing from a future when everything will be all rosy, when national debt is ever-increasing and will never be reduced.
The can has been kicked down the road, picked up by our future self and sold back to us for more than we paid for it.
It seems like such a crazy upside-down idea, that you would have to pay someone to hold your money for you, but in reality it’s nowhere near as bats
t crazy as QE. Selling government bonds that have to be bought back, borrowing from a future when everything will be all rosy, when national debt is ever-increasing and will never be reduced.The can has been kicked down the road, picked up by our future self and sold back to us for more than we paid for it.
rockin said:
"In Denmark, borrowers have been offered mortgages with negative interest rates. Mortgage customers with Jyske Bank were lent money at a rate of -0.5%, which meant the sum they owed fell each month by more than the sum they had repaid. There is no reason why UK lenders could not follow suit."
I think my head just melted...
That's nuts, it means free houses.I think my head just melted...
R4 bod this morning said that as banks can't drop rates on deposits any more, they could put rates up on loans to maintain profits.
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