Inflation watch

[UndercoverElephant]

If you keep printing money, eventually you will create inflation. You will debase your currency. So it should come as no surprise that as the UK comes out of lockdown, so inflation will start emerge. But it is very interesting that none of the mainstream media commentators on this topic are linking money printing and inflation. It's caused by all sorts of other things, apparently. Shortage of workers. Shortage of microchips. Shortage of oil...

Until now, most of the inflation has been in asset prices: property and stocks, which (for no good reason) aren't included in the headline inflation rate. But now the inflation is spreading to the rest of the economy and to wages, and once that happens then it gets harder to put the genie back in the bottle. And yet it seems the BoE aren't in any hurry to whack up interest rates, which should be the standard response to inflation heading towards double the rate they are supposed to maintain it at. "It is temporary", they say. "It will come back down all on its own, and we don't have to raise interest rates." Handy, that, since raising interest rates would have major implications for the rate governments have to pay on their gargantuan post-covid debt. Neither is there any apparent plan to stop the money-printing itself. QE will continue (https://www.bbc.co.uk/news/business-57865703).

I have had to mangle the rest of the URLs, because the board won't let me post more than 2.

NOTwww.theguardian.com/money/2021/aug/08/from-savings-to-shopping-will-higher-inflation-ruin-your-finances

When the Bank of England announced on Thursday that it had left interest rates on hold at just 0.1%, it made a prediction about inflation. The rate of price rises would increase in the near-term it said “and is projected to rise temporarily” to 4% in the winter. This would put it at its highest rate for 10 years, and would be double the level the Bank is tasked with targeting. After that, it forecast inflation running at 3.3% in a year’s time, 2.1% in two years and falling back to 1.9% by the summer of 2024.

NOTwww.bloomberg.com/news/articles/2021-08-08/ecb-s-weidmann-warns-inflation-may-pick-up-faster-than-expected

NOTwww.express.co.uk/finance/personalfinance/1474323/mortgage-warning-UK-inflation-rise-2022

“Mortgage warning issued as UK set to be hit with inflation rise in 2022”

NOTwww.telegraph.co.uk/business/2021/08/08/time-start-tightening-monetary-policy/

It's time to start tightening monetary policy. The pandemic has left household savings flush, making a surge in inflation likely without tighter controls It became evident last week that there is quite a disagreement developing in the Bank of England about inflation and the appropriate course of monetary policy.

Huge spike in used car prices:

NOTwww.bbc.co.uk/news/business-57809849

Forget cash in the attic. You may just have a small goldmine sitting on your front drive.
Because among all the strange things going on with the pandemic-hit global economy, what is happening to used car prices is one of the strangest.
For those of you who remember TV's archetypal second-hand car dealer, Arthur Daley, you might want to picture him rubbing his hands in glee. Though there's nothing dodgy going on here, just market economics. On Wednesday, the ONS inflation rate for used cars hit 4.4% for June alone. Raw stats from industry sources put the rises even higher, in the double digits. It's not just the UK either. Last month, US Treasury Secretary Janet Yellen pointed to the same phenomenon in the US. There, used car prices rose a record 10.5% in June, on top of three months of consecutive rises, leading to an incredible year-on-year inflation rate of 45%.

Wage inflation taking off, but still not keeping pace with prices (US):

NOTwww.cnbc.com/2021/07/27/wages-are-rising-but-has-inflation-given-workers-a-2percent-pay-cut.html

Wage inflation “due to lack of workers...

Lorry drivers:

NOTinews.co.uk/news/john-lewis-raise-salaries-lorry-drivers-chronic-hgv-driver-shortage-shortage-1135981

“John Lewis to raise salaries for lorry drivers by £5,000 amid nationwide HGV driver shortage”

Hospitality:

NOTharpers.co.uk/news/fullstory.php/aid/28972/Hospitality_wages_increase_14_25_due_to_staffing_crisis.html

“The staffing crisis in the hospitality sector is prompting pubs and restaurants to turn to temporary staff and has forced them to increase wages by as much as 14%, according to Indeed Flex, the online marketplace for flexible workers. “

NOTuk.news.yahoo.com/inflation-war-for-talent-wages-uk-transitory-bank-of-england-andrew-bailey-andy-haldane-gertjan-vlieghe-robert-walters-085949848.html

Recruiter Robert Walters (RWA.L) tells the City today that it is seeing a “war for talent and significant wage inflation”. The phrase is likely to have Bank of England governor Andrew Bailey biting his nails and outgoing economist Andy Haldane telling him: “I told you so.”
Inflation has been one of the hottest debates in global economics this year. Most central bankers — Bailey included — argue price rises are likely to be temporary, caused by supply chain bottlenecks and surging orders as the economy reopens. 
But wage increases point to more sustained pressure. When you bump up pay, it’s very difficult to turn around and lower it again. And with more cash in their pockets, workers are likely to drive up prices by going out and spending.
“Wage inflation has begun to emerge, with salary uplifts of 20-30% now commonplace for hard-to-source roles and talent,” Robert Walters said of the UK market.

[Catweazle]

I don't see the upsurge in used car prices as unusual - they've been undervalued for ages. For example, my wife recently bought a chinese-made swing chair for the garden, it cost just under £500. My son bought a VW passat diesel estate, with a years MOT and in perfect working order, £450 . Where's the sense there ?

[Potemkin Villager]

Fascinating stream of consciousness stuff here. Personally I have always thought that
the whole point of something "makey uppy" like economics is that stuff can be made up
at the drop of a hat.

It's all just numbers on spreadsheets innit with built in cheating opportunities? So one party might claim that
they lent 50 billion whilst the borrower may recall only borrowing 20 billion, who is to judge which number is correct?

And yes we are given the impression governments have to go borrowing from other parties who actually have vaultfulls of
actual dosh to lend.

[UndercoverElephant]

https://www.theguardian.com/business/20 ... ply-chains

Yodel drivers begin strike vote, raising fears for UK supply chains

GMB unable to reach deal on pay and working conditions with country already in grip of severe lack of delivery workers

[kenneal - lagger]

Government joy over inflation in house prices and stocks and shares, they and their mate see an increase in the value of their assets, but concern when wages go up to pay for the increased mortgage and rental costs. One rule for the rich and another for the poor.

I would suggest a property tax but then people like me who would pay at the lower level of the tax get shafted while those who could pay the tax with their pocket money can afford the advice and costs to avoid paying much, if any, of the tax.

[Stumuz2]

Welcome to Modern monetary theory.
It was never debated, discussed, or even acknowledged.
But it's here all the same.

https://en.wikipedia.org/wiki/Modern_Monetary_Theory

[kenneal - lagger]

It might be MMT if the government were creating its own money but they're not. They are borrowing the money and then are having to pay interest on it. The banks and financial markets are making a fortune from the taxpayer while avoiding paying any tax themselves.

[Stumuz2]

That is so last year Ken
The Bank of England directly funds government spending. The first one in the world to embrace MMT, although they would never call it that.

https://positivemoney.org/2020/04/major ... -spending/

This is why interest rates can never rise. The current 0.1% may seem generous when negative rates come in to get rid of the excess money in circulation.

[kenneal - lagger]

I apologise, Stu!!

I'm now going to write to my MP asking why this method or financing isn't being applied to a National Insulation Scheme to combat excess energy use in the fight against global warming. I've been suggesting this type of funding for such a Scheme since 2013 but to no avail. This type of funding wouldn't be inflationary when applied to an Insulation Scheme as the money spent could be taxed back from the recipient through the savings on their energy bills as would have happened in the Green Deal.

[Potemkin Villager]

Good luck with that one Ken it makes far too much sense!

[UndercoverElephant]

https://www.bbc.co.uk/news/uk-58364308

Hire UK workers to drive lorries, minister tells firms

...and after going all around the houses discussing everything else, finally the last line:

Tim O'Malley, managing director at food firm Nationwide Produce, said the industry needed to make its jobs more attractive to UK workers.

He said: "If we are going to increase pay and working conditions to attract British workers then we are going to have to pay more for our food, we are going to see food price inflation."

Ker-plunk.

[kenneal - lagger]

Food was too cheap anyway and people don't really value it: just look at the food waste figures. Perhaps as it gets more expensive people might look after it better and value it which will be a good thing for the future as climate change takes its toll on food production.

[UndercoverElephant]

https://www.theguardian.com/business/20 ... id-combine

Yep, that's right, folks. It's got nothing to do with printing vast amounts of fiat currency. The coming inflation is caused by brexit and covid.

[UndercoverElephant]

https://www.ft.com/content/624b3082-677 ... d617eb49b0

Inflation could spark new global financial crisis, says Russia’s central bank

Warning highlights country’s growing concern over worldwide increases in prices

but at least there is this...

Several large emerging markets have raised interest rates aggressively this year in an attempt to keep rising inflation under control. Ukraine has raised its policy rate by 2 percentage points, Russia by 2.25 points and Brazil by 3.25. But pressures remain strong.

I wonder when/if we will see interest rates at 3% in the UK and US.

[UndercoverElephant]

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