Cost of living increases

[Benfleet A1]

193.9 when I went past earlier today greedy sods

Yeah, that was the diesil price. They have now dropped to 184.9 for E10, probably because no one was using the pumps and just stopping for coffee and snacks.

 

[tia]

Yeah, that was the diesil price. They have now dropped to 184.9 for E10, probably because no one was using the pumps and just stopping for coffee and snacks.

Serve them right if people just boycott them full stop

 

[Its Only A Game]

Don’t quite understand the interest rate hike yesterday. I get that inflation is mad at the moment but there’s no growth the economy.

Usually interest rates are hiked to ease a consumer spending spree. This time inflation is being mainly driven by fuel & power costs. It’s not something consumers can really cut back on.

All it’s going to do is hike mortgage costs and make the cost of living squeeze even worse.

 

[RobM]

Yeah, that was the diesil price. They have now dropped to 184.9 for E10, probably because no one was using the pumps and just stopping for coffee and snacks.

Ah but that's where the big profit is. Also why do you think petrol stations have implants (M&S food, Tesco Express, Costa)? Big profits from rent. Little profit for services from fuel sales, more in a bag of Doritos.

 

[Tangled up in Blue]

When I was studying Economics in the 6th form (circa 1969/1970) we were told that the way to slow economic growth was to hike interest rates.Now we're told that the way to reduce inflation is to increase interest rates for borrowing and choke consumer spending.No wonder Ricardo called Economics "The dismal science".Anyone care to explain how both statements can be true?

 

[southendkid]

When I was studying Economics in the 6th form (circa 1969/1970) we were told that the way to slow economic growth was to hike interest rates.Now we're told that the way to reduce inflation is to increase interest rates for borrowing and choke consumer spending.No wonder Ricardo called Economics "The dismal science".Anyone care to explain how both statements can be true?

I'm not seeing the conflict in those two statements, they seem to be saying the same thing. If you increase interest rates then the economy (in theory, economics is complicated so it doesn't always go as predicted) slows down because people are buying less, which leads to prices going down (to try and get people buying again) and hence a reduction in inflation.

Saying the rates are increased to "choke consumer spending" is a bit simplistic, yes that is part of it (since reduced spending means reduce demand, leading to a drop in prices) but stopping as many loans being taken out is a major factor as well (probably the main reason in this case given that spending can't really go down on things like bills).

For example say a bank has £1000 deposited from customers and then loans someone £200. What they're doing is loaning someone £200 from the £1000 that their customers have deposited, which means there's really only £800 left in the bank! This might seem risky however in a stable economy it's unlikely everyone will want their money back at the same time, so as long as you keep enough money back to pay people when they ask to withdraw it doesn't matter too much.

Say there is a change in circumstances that means everyone wants to withdraw more of their money at once though (e.g. because energy prices are spiralling out of control and people need to pay the bills), then suddenly a bank might find that there isn't enough money left to pay everyone that wants to withdraw because too much has been loaned out. If this happens the bank is ****ed and as an extension so is the economy.

If a bank predicts that people will want to withdraw more than usual in the future then they need to keep more money at the bank so that there's enough money to pay everyone, which means loaning less money out. A way to do this is to up interest rates so that less loans are taken out.

 

[Yorkshire Blue]

When I was studying Economics in the 6th form (circa 1969/1970) we were told that the way to slow economic growth was to hike interest rates.Now we're told that the way to reduce inflation is to increase interest rates for borrowing and choke consumer spending.No wonder Ricardo called Economics "The dismal science".Anyone care to explain how both statements can be true?

Slowing economic growth reduces inflation.

 

[RobM]

If a bank predicts that people will want to withdraw more than usual in the future then they need to keep more money at the bank so that there's enough money to pay everyone, which means loaning less money out. A way to do this is to up interest rates so that less loans are taken out.

...and depositing money for savings is more attractive, so that can get lent out.

Aggressive banking - isn't that how Northern Rock fell from grace?

 

[RobM]

Slowing economic growth reduces inflation.

This inflation isn't caused by economic growth though.

 

[Yorkshire Blue]

This inflation isn't caused by economic growth though.

Yes, but he was asking how both statements could be true.

 

[blues exile]

When I studied economics back in 1962 for my Institute of Bankers exam the world was a very different place and everything was much more simple. Energy, water, public services all under state control so no obscene private profits or indeed even a market. Inflation was caused by excessive pay settlements not gross plundering of national assets as it is now. Taking back control of public services is the obvious remedy, but the crazed free marketeers who have exceeded even Thatcher's wildest dreams are the equivalent of lunatics running the asylum. No doubt there will be the usual bleating about bringing politics into it but fact is, that is inescapable, like it or not, even if I am banned from further contributions.

 

[Supershrimper]

When I was studying Economics in the 6th form (circa 1969/1970) we were told that the way to slow economic growth was to hike interest rates.Now we're told that the way to reduce inflation is to increase interest rates for borrowing and choke consumer spending.No wonder Ricardo called Economics "The dismal science".Anyone care to explain how both statements can be true?

If the bank expects high inflation (normally in a period of high econmic growth) then they raise interest rates, but if they expect low economic growth (and consequently low inflation, or even deflation) they lower the interest rates (and possible introduce quantative easing as well)

Currently inflation is well above the target set (2%) because of energy prices and oil shooting up, yet the market growth is sluggish and not really thriving. This presents the Bank of England with a difficulty. On the one hand, inflation is above their target so they should consider raising interest rates. However, with a depressed economy, the economy needs the opposite. So we are now in a sort of "Stagflation" period except without the high unemployment

Stagflation is an economic cycle which is characterised by slow growth and a high unemployment rate accompanied by inflation. Economic policymakers find this combination particularly difficult to handle, as attempting to correct one of the factors can exacerbate another.

The bank has been trying to kick-start our economy back to life since the 08 financial crash and almost got it going. But along came Brexit and covid which ultimately killed it dead. Its been trying to get the economy growing at expected levels (around 3%) but we have been languishing around 1% / 1.5%.

The Bank of England's issue (and many others around the world) is that energy prices have seen price rises that have been unprecedented in recent times and this has a knock on effect for other items (increased production costs / delivery costs) which gets added to the cost of each item in the ONS basket of goods that calculates inflation. So whilst the headline figure of inflation may be 10% - 13% if you have a different basket of goods your i flation rate could be higher or lower (for example, you may walk everywhere and not own a car, and would thus avoid the increase in petrol costs)

 

[Tangled up in Blue]

This inflation isn't caused by economic growth though.

Thank you.Which explains why the Bank of England and HMS Government face their current problem.

 

[Tangled up in Blue]

Slowing economic growth reduces inflation.

Surely the point is that there is practically no positive growth in the UK economy?

 

[hlane17]

If the bank expects high inflation (normally in a period of high econmic growth) then they raise interest rates, but if they expect low economic growth (and consequently low inflation, or even deflation) they lower the interest rates (and possible introduce quantative easing as well)

Currently inflation is well above the target set (2%) because of energy prices and oil shooting up, yet the market growth is sluggish and not really thriving. This presents the Bank of England with a difficulty. On the one hand, inflation is above their target so they should consider raising interest rates. However, with a depressed economy, the economy needs the opposite. So we are now in a sort of "Stagflation" period except without the high unemployment

Stagflation is an economic cycle which is characterised by slow growth and a high unemployment rate accompanied by inflation. Economic policymakers find this combination particularly difficult to handle, as attempting to correct one of the factors can exacerbate another.

The bank has been trying to kick-start our economy back to life since the 08 financial crash and almost got it going. But along came Brexit and covid which ultimately killed it dead. Its been trying to get the economy growing at expected levels (around 3%) but we have been languishing around 1% / 1.5%.

The Bank of England's issue (and many others around the world) is that energy prices have seen price rises that have been unprecedented in recent times and this has a knock on effect for other items (increased production costs / delivery costs) which gets added to the cost of each item in the ONS basket of goods that calculates inflation. So whilst the headline figure of inflation may be 10% - 13% if you have a different basket of goods your i flation rate could be higher or lower (for example, you may walk everywhere and not own a car, and would thus avoid the increase in petrol costs)

Stagflation is a dreadful situation in which we cannot really do much other than lose. Rather than look at the current situation, I think we need to look at the 14 years that followed 2008 for answers.

We can either face recession, or watch prices run out of control, sounds like a double-edged sword to me but one end is a little less sharp. Recession is far more stable than letting inflation go, especially if we care about the GBP existing at all.

Either way everyone is worse off unless they have enough money to never worry about it.

I could go on for hours about the issues contributing to our current economic crisis, but at least some of it involves politics and I know mods prefer it when things are apolitical here.

All I'll say is we never actually recovered from 2008, just put a few sticky plasters on it. The method of 'recovery' was more than economically questionable and this new crisis comes as no surprise to me.

I'm no expert but for my A-level we did an in-depth study of the UK (and global) 2008 financial crisis so I got a fair bit of insight into the issues we faced and continue to face financially.

 

[Holy Joe]

The Bank of England estimates that increased energy costs caused by external factors, ie war in Ukraine, is responsible for around 6% of the inflation - so even stripping this out, inflation is above the 2% target. They are very worried about inflation becoming entrenched - hence they are increasing interest rates to reduce demand. The pandemic and Brexit hit the supply side of the economy, as we came out of the pandemic demand rose above what the supply side could match - so they're aiming to reduce demand to match the new lower supply.

They're deliberately causing a recession - which I do find an odd approach - but perhaps it's a consequence of them focusing on achieving 2% inflation.

Incidentally why do banks target 2%? Apparently there is no science behind this magic number - it's just what felt right a few years ago when they set it! And despite the methodology behind it inflation is a pretty made up number! Seems odd to focus on it to me!

 

[pottster]

I always thought that governments like inflation as it's a way of reducing their debt. The current increase in inflation would be a good way of reducing the cost of the pandemic.

 

[Holy Joe]

I always thought that governments like inflation as it's a way of reducing their debt. The current increase in inflation would be a good way of reducing the cost of the pandemic.

There's 3 ways to improve your debt:gdp ratio - increase GDP - easier said than done, often needing an increase in debt in order to invest in the hope of reaping the rewards in later years - probably too long term for our political system, i.e., the next government or the one after will get the benefit of todays spending. (2) Reduce debt - either by increasing income (see 1) or by increasing tax - which isn't popular and an unlikely vote winner, or having a recession and allowing companies/individuals to go bust wiping their debt - again not a vote winner and reduces GDP so no g'tee ratio will improve. (3) Tolerate higher inflation - only works if your debt is not inflation linked - UK Govt has highest proportion of inflation linked debt in world - and your central bank doesn't raise interest rates too far.

Arguably we've gone for (3) over the past 18 months - but now fears are that inflation is too high and will be around for too long. If inflation had stayed below say 5% I don't think the BoE would be too bothered.


So do Government's like inflation - yes but not too much

 

[Tinks]

Luckily for me I have been mortgage free for several years now but with rates beginning to creep up I really do feel for people with mortgages ( although when I first took out my mortgage I was at around 15%).

I don’t think this cost of living crisis is actually going to really hit people until the Autumn.

 

[Holy Joe]

Luckily for me I have been mortgage free for several years now but with rates beginning to creep up I really do feel for people with mortgages ( although when I first took out my mortgage I was at around 15%).

I don’t think this cost of living crisis is actually going to really hit people until the Autumn.

Yeah - maybe into winter - next gas/elec rise is in Oct, and obviously weather gets colder, plus the lag in bills - let's hope for a mild winter