Inflation watch

[UndercoverElephant]

https://www.theweek.co.uk/business/city ... -inflation

The numbers speak for themselves. Inflation – the general rate at which prices of goods and services in the economy are rising – has leapt substantially this year.

In the US, consumer price inflation hit 5.4% in June, the highest rate in more than a decade; the Bank of England expects the UK consumer price index to reach 4% by the end of the year – double its 2% target.

The big debate is whether this jump is down to the extraordinary hiatus caused by the pandemic and therefore, in the soothing term favoured by central bankers, it is “transitory”; or whether it presages something more “sticky” and problematic. Consensus still favours the first. But some economists think we may have reached a historic turning point: that the scourge of entrenched inflation is making a comeback.

[Potemkin Villager]

https://www.standard.co.uk/business/eco ... 53246.html

"Property prices have soared 11% in the past 12 months according to Nationwide, and now stand around 13% higher than when the pandemic struck. In London, where growth is lagging behind the national picture, an average home costs £511,190."

Half a million for an average poorly insulated and expensive to run nondescript box with a huge council tax, noise and environmental pollution...... it's serious when you would need to rob a bank to be able to buy a house.

[UndercoverElephant]

https://www.standard.co.uk/business/eco ... 53246.html

"Property prices have soared 11% in the past 12 months according to Nationwide, and now stand around 13% higher than when the pandemic struck. In London, where growth is lagging behind the national picture, an average home costs £511,190."

Half a million for an average poorly insulated and expensive to run nondescript box with a huge council tax, noise and environmental pollution...... it's serious when you would need to rob a bank to be able to buy a house.

We now have a situation where property prices are in a massive bubble, general inflation including wage inflation are now starting to rise after them, and the only levers available to control the general inflation will collapse the bubble, leaving us right back where we were in 2008 before the money printing started. I think something big is coming.

[clv101]

UK inflation averaged around 10% for the decade ~1973-'82. I wasn't paying much attention back then but I'd be interested in hearing from some of the older members of their direct experience living and working through this period.

[Catweazle]

UK inflation averaged around 10% for the decade ~1973-'82. I wasn't paying much attention back then but I'd be interested in hearing from some of the older members of their direct experience living and working through this period.

Some memories: Strikes, powercuts, civil unrest, anti-union propaganda and laws, unemployment, picket lines. Rubbish piling up in the streets, hand-knitted clothes from recycled wool, graffiti. Then a long stretch of conservative government.

[adam2]

I recall a classic newspaper cartoon strip from that era. Shows a couple in bed reading the papers. Headlines exaggerated doom reports.
"eggs £1 each"
"no trains until March"
"petrol rationing"
"power cuts 28 hours today"

Two young children rush into the room shouting "MUM, DAD, IT IS WONDERFULL, WE HAVE GOT TWO FEET OF SNOW"

Father swears and throws slipper at children.

[Stumuz2]

We now have a situation where property prices are in a massive bubble,

Yes, it is a spill over from massive QE.
Printed money went direct to those at the top. If you believe a rising economy lifts all boats twaddle, then the QE on speed is now leaching into the real economy.

the only levers available to control the general inflation will collapse the bubble, leaving us right back where we were in 2008 before the money printing started.

I don't think they will do that, Because all private pensions, stocks, property prices ( the main asset a bank has) will collapse. I think they will print to infinity and trash the current currency. Then when the world financially collapses in unison( or countries which have fiat currency) they can say with injured innocence,
"we didn't see this coming"

I think something big is coming.

I think you are right. Time to be in hard assets which cannot be printed out of thin air.

[clv101]

...hand-knitted clothes from recycled wool...

Yep, I had those as a kid!

Two young children rush into the room shouting "MUM, DAD, IT IS WONDERFULL, WE HAVE GOT TWO FEET OF SNOW"

That may have been me. Some good snow in the early eighties.

[Catweazle]

I don't think they will do that, Because all private pensions, stocks, property prices ( the main asset a bank has) will collapse. I think they will print to infinity and trash the current currency. Then when the world financially collapses in unison( or countries which have fiat currency) they can say with injured innocence,
"we didn't see this coming"

That seems likely to me too. I've been thinking of inflation as a savings tax, where the central bank prints new money and thus transfers wealth from Joe Publics savings into the govt pocket, who, in a last hurrah, gives it to their buddies as a tax cut or building contract.

[PS_RalphW]

I get the impression that a lot of landlords are bailing out and cashing in their profits, on fear of a rise in capital gains tax. The pandemic has shifted the market a lot with wealthy home workers looking for more space. Since our tenants left last week we are going to sell up and see which way the market goes before relocating, probably downsizing at the same time. The estate agent says the right properties are going for well over asking prices.

The difference in the 70s was that interest rates tracked inflation much more closely, to preserve people's savings value to some extent. I think far more people relied on cash savings in retirement than the current generation of equity based pensions. It was mostly Labour in power, so they cared about such things. I seem to remember in the 80s that savings interest rates were higher than inflation numbers, so savings simply increased in value over time sitting in the bank.

[adam2]

I get a general and non specific feeling of approaching doom, and am in fact surprised that BAU has lasted as long as it has.

As well as the dangers of inflation, other risks have not gone away, extreme weather events, war, civil disorder, and major utility failures.
Sooner or later I fear that several disasters, each of which was survivable on its own, will coincide and not be survivable by government/modern society.

Consider for example, economic mismanagement that leads to high inflation.
AND an extreme weather event that kills thousands.
AND a major city without electricity for a week or more.

We had high inflation in the 1970s and the world did not end.
The 1953 floods killed several thousand in the UK and the world did not end.

If however two similar disasters occurred today at the same time as something else, like a week long blackout, a solar flare, or a major terrorist attack, then it could end very badly.
Individuals and society at large are becoming ever more reliant on utilities and on "just in time" deliveries. In the 1953 floods, many rural areas did not even have electricity ! And in those that did it was still a new and not yet trustworthy invention, without which people could manage.

[UndercoverElephant]

We had high inflation in the 1970s and the world did not end.

Yes, but the reason it didn't end was that it was possible to cut off the money supply and then grow out of the problem, using north sea oil to fuel the boom. The process was extremely painful, but there was a route out of it. This time there is no growth route out of it. The same "medicine" in this case would produce something worse than The Great Depression.

[kenneal - lagger]

The government could address rising house prices by building large numbers of public rental houses which would take the edge off the rising price of houses in the UK. It would also discourage foreign buyers who cash in on housing in the UK as a hedge against inflation in their own countries if the price becomes static or even drops a little although he UK is also seen as a safe place to hide money for many foreigners.

If they print the money for this building this "printed" money could be paid back from the rental over the years and so wouldn't be inflationary. Capital spending is not generally inflationary whereas printing for current account spending is. A distinction between the t0ow must be made.

[Mark]

The government could address rising house prices by building large numbers of public rental houses which would take the edge off the rising price of houses in the UK. It would also discourage foreign buyers who cash in on housing in the UK as a hedge against inflation in their own countries if the price becomes static or even drops a little although he UK is also seen as a safe place to hide money for many foreigners.

Manchester has been going through a building boom for the past few years - cranes everywhere....
Much of it Chinese funded faceless glass towers, filled with expensive apartments

Chinese cash funds northern housing:
https://www.insidehousing.co.uk/home/ho ... sing-44894

[UndercoverElephant]

https://www.express.co.uk/life-style/pr ... rty-market

Average UK home could cost over £323k by 2031 with house prices expected to surge by 30%