We Brits should stop spending too much.
We are stupid......

Looking forward to reading the minutes - Im sure the MPC will once again explain the higher than expected figures as the result of 'one off factors'.

No doubt they will leave interest rates unchanged at 0.5% for too long. History shows that the committee does not posess the keenest nose when it comes to smelling the coffee on these matters...

Confounding City expectations that the cost of living as measured by the consumer prices index would fall back towards the government's 2% target

But...wait...what...the city experts got it wrong?!?!

My oh my

Well what we clearly need is continued public sector spend coupled with 5% pay rises all round and a special shiny new red flag for Mark Serwotka. After all everythings peachy in Cuba.

Tories = inflation

City analysts and bankers get things wrong. Well what a surprise.

This level of inflation is minimal and it would be a big mistake to focus on it when the massive problem is that of a looming recession.

Too right! I don't know anyone who hasn't been hit by the downturn through redundancy, pay cuts or pay freezes, yet the cost of food, houses, etc is on a continual upturn. It's shit and something's going to have to give.

Surely they're going to have to change their rhetoric soon and start talking about a possible rise.

The Bank of England "has a legal duty to hit the 2% inflation target." What a fucking joke.

How about linking inflation measures to everyday purchases rather than white goods or goods that are rarely bought by householders.

Link it to the price of:

Milk
Bread
Petrol
Electricity and Gas prices
etc..

Then we will see how much inflation really is.

If you print money, sorry, quantitatively ease, you get inflation. Ask Mugabe.

"Inflation, Inflation
Inflation, that's what you need
If you wanna be the best
If you wanna beat the rest
Oh-oh Inflation's what you need;
If you wanna be a record breaker."

Or am I just showing my age now?

I don't see that raising interest rates will have any impact towards lowering the cost of food or fuel, and as these are often on the list of items with high inflation I therefore can't see raising interest rates will help at all.

Raise interest rates immediately to alleviate the higher prices affecting the average worker.

Inflation has been well over the "target" of 2 % for well over a year now with the Bank taking zero action to affect it, yet journalists accept this lack of action unquestionably.The evidence of inaction on inflation would suggest the 2 % target has basically been postponed for the time being.Could there be a rethink on inflation going on behind the scenes?Inflation is self perpetuating when wage negotiations seek to reflect inflation creating a upward cycle.Have policy makers realised that the weakness and climate of fear in the labour market means that workers simply do not have the power to make wage claims above or even matching inflation?

What pisses me off is how our policy makers seem to just watch all this happen as if they only have one tool to combat inflation.

Surely if we struggle to lower inflation as we import food we should be encouraged to eat locally grown stuff or heaven forbid if we can grow our own.

Iwas shocked to find out that we import half the food we eat. half.
i know I'm being simplistic but you see what I mean.

it was the same with the housing bubble. we all knew it would end in trouble. My house was earning more in a year than my wife was. It was all we ever talked about. we all knew that the economy needed rebalancing and yet its only now after a crash that it's being taken seriously.

my point is that we need to look at these problems more holistically and need to be more interventionist in sorting them out.

but the strengthening seen in sterling should at least help to dampen import price inflation in coming months.

This is true but what we are currently suffering from is the delayed impact of the collapse in sterling two years ago now being passed on from producers and wholesalers to the consumer.

Despite a small rally recently over the last two years sterling has still depreciated significantly against our major trading partners:

US dollar - 25%
Euro - 20%
Aus dollar - 35%
Yen - 45%

This is a direct result of the UK's fiscal position and its massive deficit.

Running a budget deficit of 10% has serious negative consequences. It depreciates the currency and forces up inflation. This cuts into the living standards of everyone in the country, but most significantly those on fixed incomes (pensioners and those on benefits) who are often the poorest members of our society.

Against the "nastiness" of the cuts please also realise that there is a "nasty" dimension to running budget deficits.

It is about time the real cost of air travel was paid by the travelling pubic and recognised by the MPC.

Why is the bank rate held at the emergency rate of 0.5%? It gives the banks the excuse to pay very little interest to the savers whose money they borrow and, since there is pressure upon them to keep mortgage interest rates low, the banks then start throwing lots of other charges at their customers, creating an atmosphere of fear and uncertainty.

For goodness sake raise the bank rate and let people earn a bit more interest. There is a whole sector of the population - let's call them the prudent ones - who are afraid to spend because they can't see any money coming in. Raising the bank rate, contrary to the received wisdom, would unlock the economy and get it going again.

Inflation has been well over the "target" of 2 % for well over a year now with the Bank taking zero action to affect it, yet journalists accept this lack of action unquestionably.The evidence of inaction on inflation would suggest the 2 % target has basically been postponed for the time being.Could there be a rethink on inflation going on behind the scenes?Inflation is self perpetuating when wage negotiations seek to reflect inflation creating a upward cycle.Have policy makers realised that the weakness and climate of fear in the labour market means that workers simply do not have the power to make wage claims above or even matching inflation?

Mervyn, could you post me this very inconsequential letter on the way to work?

Yes dear, I have been the Governor of the BOE for 7 years, I think I can manage that.

Actually dear, on second thoughts I might just do it myself.

the reason why prices are rising,its because the last new labour gov started printing more money which caused the pound to devalue against other currencys in the world by 25% at least,and because of this printing of more money we will pay higher prices for nearly everything,these increases is all about the pound being devalued nothing else.

Now can we have the real RPI figure for inflation - 4.7%. Since wage levels are stagnating around the 1% mark, and yearly increases in benefits and pensions are tied to the fraudulent CPI 3.1%, workers, pensioners, savers, are effectively having their income reduced. I would have thought this policy of monetization of the national debt was becoming pretty obvious. Although no-one is openly addmitting it. Well in the words of Mandy Rice-Davies, they wouldn't would they. All the talk about deflation is just camouflage, they are robbing us blind with the biggest stealth tax of all,.

Tell me I am wrong!

@ra100

How about linking inflation measures to everyday purchases rather than white goods or goods that are rarely bought by householders.

Link it to the price of:

Milk
Bread
Petrol
Electricity and Gas prices
etc..

Then we will see how much inflation really is.

No you will not.

They use a basket of goods and services which is weighted to reflect how much people spend on average on all of the above items you listed. For the average person this doesn't exceed about 50% of disposable income at most. The other 50% has to be spent on something - no? In which case it is entirely relevant to include the prices of white goods and other rare purchases.

Isn't it time for Merv to go?

Here's the man who presided over the banking crisis - and never saw it coming - and is now failing in his duty to control inflation.

It's no good keeping interest rates low while our savings and standard of living are constantly eroded by inflation, especially as there is no link any more between what people pay for loans and mortgages and bank base rates (excluding a few lucky ones to have prospered from base-rate tracker mortgages).

How about linking inflation measures to everyday purchases rather than white goods or goods that are rarely bought by householders.

Link it to the price of:

Milk
Bread
Petrol
Electricity and Gas prices
etc..

It is already.

Jeez, and this comment actually got some recommends. One despairs, one really despairs.

thewash 14 September 2010 10:36AM Tories = inflation

Of course, because inflaction was well under control with the last government

Running a budget deficit of 10% has serious negative consequences. It depreciates the currency and forces up inflation.

Really. Why is Japan stuggling with deflation and currency appreciation then with a 200% debt to GDP ratio.

Truth by repeated assertion with zero econometric data to back it up.

Running a 10% budget deficit allows the private sector to pay off its debts by exactly 10%, thus giving it room to recover.

I truly hate to say this for obvious reasons, but I fear that over the past decade or so we have simply got used to a standard of living that we cannot afford and are not entitled to.

I'm not an economist and I don't want to be a doom-monger but slowly I am becoming convinced of this, mainly because it is becoming more difficult to afford luxuries - it makes me wonder whether or not we as a society have been living well beyond our means.

It was being funded by debt and borrowed money, and sooner or later the future is bound to catch up with us.

It might just be that we are not entitled to live as well as the previous government told us we were.

Can't be too long before Gideon takes responsibility off the BoE for setting rates, he'll of course wait until all his mates are out of property and in Sterling (physical and futures) and then kaboom!! rates at 5% in a heartbeat...The Daily Hate readers will rejoice as they get more interest on their savings...whilst their house value plummets by 40%...

i can understand the airfare rises because everybody wants to get out of britain but food rises maybe all the unemployed sit around and eat all day

Could there be a rethink on inflation going on behind the scenes?

No, it's the VAT rise.

1.6% of the CPI figure is attributed to the rise in VAT in January, and we will get it again next year as it rises again.

So the 'underlying' inflation rate is about 1.5%

@ Slidewinder

Raising interest rates will increase the value of the pound and that will reduce the price of food and fuel in this country.

Interesting that the currency broker quoted expects rate rises to start in February. Around the time that the first post-VAT rise inflation figures come out. The VAT rise will add at least 1% to the inflation rate. The BoE will keep rates on hold for as long as inflation is reasonably close to the 3% letter writing limit. It should be noted that tax rises in general are disinflationary if the money raised is used to reduce Government borrowing rather than increase spending. Spending cuts are also disinflationary. The BoE has a tough job. It is easy to see deflationary forces on the horizon and the potential for this to be a short-lived recovery.

the reason why prices are rising,its because the last new labour gov started printing more money which caused the pound to devalue against other currencys in the world by 25% at least

The phrase you are looking for is: Post hoc, ergo propter hoc

It doesn't work like that as Japan clearly shows.

The fall in Sterling is a comment on our economy, not the money itself.

Everyone is moaning about inflation and accusing the Government of standing idly by.

However, don't you realise that controlled inflation is seen by the Government as the only way of paying off the national debt ? The figures are so huge that they have to use inflation to decrease the size of the debt in real terms. In other words, inflation isn't happening by accident.

The fine words issued by the BOE about battling against inflation and the farce of the governor writing to the chancellor to explain is simply window dressing.

Yes,it's going to be tough on pensioners and those on fixed incomes. And the value of assets will eventually soar, making the rich even richer. But it's more politically expedient than hiking taxes to the extend needed to pay down the debt.

Also, chaps, inflation matched with a freeze on benefit payments will effectively reduce the cost of welfare, and its true value to the recipient without anyone noticing - a clever political ruse . It will force people into work, without any fuss, and erode the standards of those who chose welfare as a lifestyle which is how the £4 billion in savings will probably be achieved.

Really. Why is Japan stuggling with deflation and currency appreciation then with a 200% debt to GDP ratio.

Japan is running a smaller budget deficit than the UK. Japan's poor fiscal situation was priced into the markets years ago (debt, low GDP growth, aging population etc). The "surprise" factor in global capital markets over the last two years has been the rapid collapse (or rapid realisation of the collapse) of the UK's fiscal health. Hence the reason why sterling collapsed two years ago and hasn't recovered much.

95% of Japanese debt is held by Japanese institutions.

If Japan's fiscal situation were healthier the yen would be even stronger.

thewash

Tories = inflation

(inflation + unemployment) * inequality = right wing government

These inflation numbers are very disappointing. At what point will the Monetary Policy Committee admit it has made a mistake?

Sorry in advance for rant but...

It really irritates me that increases in prices are described as inflation, by opeople who are paid to know better. This is dangerous muddled thinking, because several things can cause a rise in prices (shortage of goods, changing exchange rates, lower savings rate, increase in credit,...) and these different causes have very different effects.

In particular, it is often said that "inflation reduces the burden of debt". But this is emphatically NOT true, unless WAGES increase. An increae in prices makes paying debt off harder, not easier.

Inflation is an increase in prices of goods, services, assets and labour (wages) caused by an increase in the money supply (including credit) above and beyond the increase in production. This is not what we are seeing right now, and if you use the wrong word, you are likely to come to the wrong conclusions.

OK, I feel better now.

We are living beyond our means. No surprise there.

Let's start by taxing luxuries such as big cars (mainly imported) and exotic foods (imported). Let's also get used to a credit crunch - no more easy credit EVER. You cannot survive by substituting credit for income.

Then if everyone went back to wartime measures such as growing veg in the back garden and keeping poultry that would shave another few percent off the bill.

Prevention is better than cure - and cheaper. So cut the NHS bill by making the smokers cough up for treatment, likewise the fatties. Look closely at Britains love affair with junk food, especially cheap meat burgers and sugar / chocolate.

There are so many short and medium term measures that we could take in our narional and personal existence that might be painful at first but would reap enormous benefits in the long run.

Very alarming really, the increments in costs for staples in my local supermarket (a big chain) are awful. I can pretty much buy what i want, single, expendable income etc etc.
Low income families will have to cut there cloth further which means an evernn worse standard of living. The powers that be are doing f*ck all to tackle the problem too.

@ neilwilson

Running a budget deficit of 10% has serious negative consequences. It depreciates the currency and forces up inflation.

Really. Why is Japan stuggling with deflation and currency appreciation then with a 200% debt to GDP ratio.

Truth by repeated assertion with zero econometric data to back it up.

Firstly, please learn the difference between deficit and debt.

Secondly, the reason that the Yen has appreciated is that the Japanese government set out to reduce its deficit back in April, taking the sort of action that only now is the UK government facing up to.

Thirdly, the Japanese debt is self financed, meaning that the Japan can afford its debt, while the UK finances its debt by borrowing abroad.

Fourthly, Japan has a positive trade balance, which means that other countries need Yen to buy goods made in Japan, which makes the currency very stable.

Running a 10% budget deficit allows the private sector to pay off its debts by exactly 10%, thus giving it room to recover.

Is this your level of understanding of finance? This is just plain nonsense!

Yes,it's going to be tough on pensioners and those on fixed incomes. And the value of assets will eventually soar, making the rich even richer.

There's a weird belief on CiF that "the rich" get richer under any economic scenario. Boom times under Gordon Brown led to the rich getting richer and inequality growing. And yet plenty of Ciffers think that nasty Osborne is deliberately engineering a recession to allow his "banker mates" to get richer.

Not sure you can have it both ways.

Asset inflation doesn't make anyone richer if it results in a currency collapse (as higher inflation will cause).

What's the point of owning a million pound house if a million pound only buys enough dollars for a week's holiday in Florida ?

When do we get to call this what it truly is - stagflation. Just because we don't have double digit inflation, it doesn't mean that the outcome is the same. Rising prices, falling living standards and rising unemployment.

And yet idiots in the TUC and the likes of Dr Jazz think that printing more and/or borrowing more will fix things? IT IS BROKEN, THERE IS NO FIXING IT. Take the medicine and come out the other side.

Gosh and nobody saw this coming.

Let's compound this by making a million more redundant, raising Vat, taking away vital services, freezing pay, pensions and hiring. What a great economic plan the Tories have! Increase growth through inflation and redundancy and remember, always protect the banks.

We should be flush in no time.

The CPI is a very poor measure of inflation for individuals and households and was never designed to be such a measure. You should concentrate on the RPI . See the web page of the ONS:
"The RPI is the best indicator of consumer price inflation in the United Kingdom"
from
http://www.statistics.gov.uk/articles/economic_trends/HICP0298.pdf

This document dates from when the CPI was first introduced and discusses the differences between the CPI and RPI.

neilwilson:

The phrase you are looking for is: Post hoc, ergo propter hoc

The fall in Sterling is a comment on our economy, not the money itself.

Not true. Markets reflect what they expect to happen in the future.

Hence currencies collapse ahead of the government actually physically needing to finance a deficit.

Following the banking crisis currency markets realised the UK would be hit harder than most and would need to run massive deficits. Hence sterling was marked down.

@regal

the reason why prices are rising,its because the last new labour gov started printing more money which caused the pound to devalue against other currencys in the world by 25% at least,and because of this printing of more money we will pay higher prices for nearly everything,these increases is all about the pound being devalued nothing else.

The government didn't "print money". It attempted to increase the amount of money in the economy by quantitative easing. This involved using a bit of financial jiggery-pokery to increase the assets of the banks, who were then supposed to lend the extra money to us. But instead, the banks buggered things up by hanging on to the money, which is why the government keeps berating them for refusing to lend. So, there isn't a huge amount of extra money washing around the economy - it stayed with the banks. Something else is causing the inflation.

it's very obvious that this is just a way of refinancing the banks/governments...

might seem like a low rate bit it's 6 times the base rate

so this is now a similar situation to pre housing crash in thatchers times...

wonder what'll happen when the credit starts to dry up again and they're forced to raise the base rate to bring into line...

Feedback

Also, chaps, inflation matched with a freeze on benefit payments will effectively reduce the cost of welfare, and its true value to the recipient without anyone noticing - a clever political ruse . It will force people into work, without any fuss, and erode the standards of those who chose welfare as a lifestyle which is how the £4 billion in savings will probably be achieved.

A direct quote from the right wing numpties book of faith based political initiatives.

Inflation won't match a freeze on benefit payments. Inflation will rise as benefit payments are frozen making it even harder for hundreds of thousands thrown out of work in order to keep the neoliberal economic reality afloat. The reality where the banks and government champion spending and debt as the way to provoke growth, the banks start recklessly betting on the value of that debt in a delusional risk free environment, when it goes wrong we lend them the money to stay afloat, we then borrow back money to protect the public from the fact the banks have stopped lending in order to recover profits, then the banks panic that we can't pay back the money they lent us that we lent them - and threaten another recession unless we break ourselves paying them back immediately.

That's the system we're fighting to preserve.

will effectively reduce the cost of welfare, and its true value to the recipient without anyone noticing - a clever political ruse

Complete crap. Never happen. The poor will get poorer as every penny is worth less. The only ones who won't notice is David Cameron and George Osborne who rely on a trust funds for their income, and you who'll be too busy cheering them on. Everyone actually affected by it (the rest of the country not on a trust fund) will notice.

Exactly what jobs will be people be forced into? All those new ones created in the private sector as the economy retreats? McJobs? The ones created when you throw a handful of magic beans out your window?

It would be nice if right wingers could make reality as a lifestyle choice instead of believing in pixies and then burning the country on the back of that belief, but then they wouldn't be rightists if they had a clue.

Cannot believe the hilarious posters that believe the current administration is responsible for the inflation, and then slams them for taking money out of the economy on the other through public sector cuts (at the same time as secretly pumping champagne into unnamed but clearly real fat cats obviously). Isnt there enough of interest at the TUC conference to keep you from frothing on your BlackBerries, eh lads? Is it one of those 'Chavez, top bloke eh?' motions that you cant be seen to support?