British inflation

[wiggin]

As many of your have likely seen already, British inflation levels have again been rather high this past month (much higher than the BoE's target), which is continuing a trend of rising inflation. I find this rather startling since inflation in other major Western economies has been fairly subdued, and inflation expectations continue to be low (though they are much higher in England and rising).

I haven't had much time to think about this, so does anyone have an idea why this is the case? Britain is nearly first among the major developed economies to adopt serious fiscal tightening, and their monetary policy is tighter at least than US monetary policy. So why the increased inflation? It can't just be currency depreciation (though that likely plays a role) since the dollar and the euro are also under pressure. Commodity prices are part of it, but again other major developed nations haven't seen the same problems (though it seems likely a big part of China's inflation is likely due to commodities).

Anyone have any more insight? I would have expected this to happen to many other countries before the UK. What's really worrying is that inflation expectations are being driven much higher than normal, which is not good news, but I can't really see where things are going.

I know of a few other countries experiencing higher than expected inflation, but most of those are economies that weathered the crisis very well and are recovering faster than the rest of the developed world. Both Australia and Israel, for example, started seeing higher inflation earlier this year and clamped down on monetary policy as a result (though Israel has been trying to finesse their exchange rate by intervening in forex markets to keep the shekel low; contradictory policy goals must be a headache for Fischer). Hell, I don't know about Australia's economy well enough, but Israel's experiencing inflation to a large degree due to their own housing bubble in the works, which is completely divorced from global trends. But that's a very different story than England, where the crisis was much deeper and the recovery is slower.

[Being]

How do you distinguish between inflation and gouging?

[RandBlade]

Gordon Brown screwed us until the pips bled.

More seriously:
Currency factors are major. Yes the euro and dollar have been under pressure but not very long ago £1 = $2, now £1=$1.56 so even with the pressures on the dollar you can add another 25% to that. The same with the euro, I believe the pound has fallen at least that much against the euro ... this has helped the British economy recover unlike more moribund Eurozone economies but inflation is the price to pay for that. Given that commodities like oil are priced in the dollar that means a further 25% rise for the UK that America has avoided.
Interest rates are historically low - 0.5% interest rates are the lowest ever on record. That results in inflationary pressures.
The prior government did a lot of "Quantitative Easing" - again inflationary.
Increasing oil prices feed through to everything else that's sold.

It's going to get worse before it gets better:
In the New Year VAT goes up from 17.5% to 20% - that by itself is inflationary but given that prices in Europe include VAT companies won't just increase prices by the extra 2.5% - they'll increase them to another round number and sneak a price rise in while doing it. My companies doing that, if tax is going up 50p the price is going up £1 (why charge either a stupid number or take the hit). A recent survey showed most companies will do the same. To be fair, raw costs have gone up a lot in recent years so this just makes up for that, my raw cost percentage is still higher than it used to be.

Worst of all:
Inflationary expectations are there now for the first time in decades.

EDIT: Gouging is a stupid term IMO.

[Being]

It's going to get worse before it gets better:
In the New Year VAT goes up from 17.5% to 20% - that by itself is inflationary but given that prices in Europe include VAT companies won't just increase prices by the extra 2.5% - they'll increase them to another round number and sneak a price rise in while doing it. My companies doing that, if tax is going up 50p the price is going up £1 (why charge either a stupid number or take the hit). A recent survey showed most companies will do the same. To be fair, raw costs have gone up a lot in recent years so this just makes up for that, my raw cost percentage is still higher than it used to be.

EDIT: Gouging is a stupid term IMO.

Um, see bolded portion of your explanation.

[agamemnus]

The reason this is the case is because the pound is not considered much of a reserve currency... (as opposed to dollars, euros, and sometimes yen)

In general the inflation is caused by inflation in commodity markets (eg: Asia). There is inflation in the US too as I have said/predicted -- input prices for production. We are not seeing it yet mostly because the dollar is a reserve currency.

As Rand said, Lower unemployment means more production and thus virtual inflation, as more people lend and borrow. (the supply of cash just changes hands more often... the amount of cash is actually "the same")

[GGT]

Michael Saunders, UK economist at Citigroup, said today: "No other major industrial country has experienced such persistent inflation overshoots at any point in recent years. Inflation is also far above the MPC's forecasts: a year ago they predicted that (even with this year's VAT hike) CPI inflation in the fourth quarter of 2010 would be 1.6-1.7%; the outturn is roughly twice that.

"In February 2010, after this year's VAT hike, the MPC forecast CPI inflation in the fourth quarter of 2010 to be 1.5%. The overshoot is far bigger than can be attributed just to recent developments in oil and other commodity prices."

Saunders added: "We believe a lack of accurate inflation forecasts, plus the MPC's habit of downplaying repeated inflation overshoots, could lead to a further rise in long-term inflation expectations and erosion of the inflation target's credibility in coming months."

The end part is for Rand:

But Scott Corfe, analyst at the Centre for Economic and Business Research, said slack in the labour market would provide a counterweight to upward price pressure from the VAT increase and rising global commodity prices.

"It is unclear whether, at a time of pay freezes and underemployment, firms will be able to pass on input price rises to consumers without seeing a notable loss of demand. This should place a limit on inflation next year, and provide a rationale for keeping the Bank of England base rate on hold."

http://www.guardian.co.uk/business/2...rest-rate-rise

[agamemnus]

Except.... worldwide interest rates have exploded in the past month.

[RandBlade]

Um, see bolded portion of your explanation.

That's not gouging, it's business. Round numbers are not used because they are the result of some exact formula for calculating costs they are a marketing decision.

When we suffer a price increase we do not immediately pass it on, we swallow it - and stay swallowing it and more and more until the price bursts through the barrier, at which point it jumps more than the final straw, it jumps to the next bracket. And so the process continues. Otherwise you'd see stupid numbers on every shelf and every product. That's not gouging, its marketing, its human behaviour. What I described is not in any way "an act of extortion; swindle." Our prices are published, you make your decision to buy or not to, the way gouging is used to describe every instance of a price going up by more than the final straw that pushed it up is immature behaviour. For my own company as I said at the end: "my raw cost percentage is still higher than it used to be." If there was some ridiculously precise formula for our prices then (A) our customers would think we're completely nuts and never know in advance what prices to expect and (B) my prices would be more, not less. We've absorbed so many hits because of the current situation, VAT rise is a massive hit and perfect timing to make up for some of the others.

[GGT]

So you'd disagree with what that Corfe analyst said about passing price onto the consumer? Pay freezes, underemployment, UK austerity program + VAT---do you think folks will stop buying?



Also, what's up with BBC? They do a better job of linking to other sites than writing their own articles. Didn't it used to be better?

[Lebanese Dragon]

When you say your company? Did you start your own company, or work for a company?
Secondly, I think in the future prices will be all effed up, a good will be 3.749215 dollars. We have prices designed to account for people often discounting change, and often just looking at the the largest dollar amount. Interesting to think of cost products changing minute to minute through some computerized digital system.

As far as passing cost onto the consumer, it's all about the supply and demand elasticites. Any increase in price some percent of that will be passed onto consumer some the business will absorb. If a small change in price means a large change in purchases, then less of the cost increase will be passed onto the consumer.

[GGT]

You mean like, "SALE! 2 for $20!", when one used to cost 9.95? One of our groceries does that kind of two-fer all the time, hoping we won't notice the price jack. Currently there's a huge bin of small Kellogg's cereal boxes, 10 for $10 (with preferred customer card ) You can buy one for $1.00 *Oh, look honey, it's only a dollar"---dollar stores make out big using our cheap-skate-stupid meter that way*, but per ounce it's more expensive than buying a full box of cereal.

Coffee started that a couple of years ago, same price as the old pound, but a few ounces short of a full pound. Shaving an ounce here, a dime there, pretty soon it adds up to real money.

Edit--I think that's what Being meant by "gouging" the consumer. The US has gotten really good at this, too. Now all of our grocery stores have arrangements with a gas station chain. The more you buy at the grocer, the more consumer "points" you accumulate. Then you get a corresponding "discount" at the gas pump. Or a free turkey or some other free gift. Weis is the master at this, but what they do is raise most items a few pennies. At check-out they're trained to remind you how much you saved today, shopping at Weis.

Giant went one step further and built their own fricking gas stations, where our "Bonus Card" can be scanned for discounts at the pump. They hang green tags on EVERY item in the store, to make it look like EVERYTHING is a bargain. Then I can't compare price per pound without a calculator, add in coupons and it's a mathematical mess for the consumer. Nice scheme!

[wiggin]

Currency factors are major. Yes the euro and dollar have been under pressure but not very long ago £1 = $2, now £1=$1.56 so even with the pressures on the dollar you can add another 25% to that. The same with the euro, I believe the pound has fallen at least that much against the euro ... this has helped the British economy recover unlike more moribund Eurozone economies but inflation is the price to pay for that. Given that commodities like oil are priced in the dollar that means a further 25% rise for the UK that America has avoided.

I think currency factors can play a role, definitely, but inflation in the US is extremely low (about 1.1%) and has been since June, while Germany's inflation rate is a still lackluster 1.5%, with France at 1.6%. I don't think that currencies are that different; GBP was $1.61 back in January, dropped down to the high $1.40s in May/June and has stabilized in the high $1.50s for the last half year. I can't imagine that's feeding so much into 3+% inflation month after month. I don't doubt it's a factor, but not the factor.

Interest rates are historically low - 0.5% interest rates are the lowest ever on record. That results in inflationary pressures.

True of nearly every other developed country in the world. Given the large output gap remaining in the UK (as well as the US and much of everyone else), why would this feed into inflation when it doesn't do so elsewhere?

The prior government did a lot of "Quantitative Easing" - again inflationary.

Correct me if I'm wrong, but isn't the Bank of England independent? I know you don't like the Labor party or their fiscal policy, but monetary policy is not set by them. Also, same argument goes as above - QE is a way to effectively drive interest rates below zero, and everyone else has done it as well (often far more aggressively than the BOE), yet they're not seeing the same banner inflation. What gives?

Increasing oil prices feed through to everything else that's sold.

Ditto for everything else in this list - applies to everyone, and I don't think England has some remarkably disproportionate use of oil that's going to drive their consumer price inflation somehow differently from everyone else's.

In the New Year VAT goes up from 17.5% to 20% - that by itself is inflationary but given that prices in Europe include VAT companies won't just increase prices by the extra 2.5% - they'll increase them to another round number and sneak a price rise in while doing it. My companies doing that, if tax is going up 50p the price is going up £1 (why charge either a stupid number or take the hit). A recent survey showed most companies will do the same. To be fair, raw costs have gone up a lot in recent years so this just makes up for that, my raw cost percentage is still higher than it used to be.

This is fair enough, but I feel that since the majority of the fiscal tightening has been in spending (and less in taxes), that would balance out to a net contractionary and deflationary pressure (at least in the short term).

Worst of all:
Inflationary expectations are there now for the first time in decades.

I definitely agree this is a problem. Monetary and fiscal policy can be loose as long as current inflation remains reasonably low, but inflation expectations should never budge unless something fundamentally weird is happening with your economy or people have resigned themselves to higher inflation for some reason. I don't know if the BoE is doing a bad job or not - and I hesitate to blame higher inflation expectations on chronic underestimation of inflation estimates - but clearly something bad is going on. I'm just not sure what it is.

The reason this is the case is because the pound is not considered much of a reserve currency... (as opposed to dollars, euros, and sometimes yen)

You're going to have to walk me through that one. Why would the pound's status as a reserve currency (or not one) have an effect on consumer price inflation?

In general the inflation is caused by inflation in commodity markets (eg: Asia). There is inflation in the US too as I have said/predicted -- input prices for production. We are not seeing it yet mostly because the dollar is a reserve currency.

Your bolded part is bullshit, US inflation is dangerously low.

Except.... worldwide interest rates have exploded in the past month.

I wouldn't say 'exploded' - they're still historically low.

[GGT]

Then it's their tight monetary policy, inaccurate MPC forecasts, and downplaying inflation risks. That's the only variable that's different for the UK than any other nation.

US inflation is dangerously low.

We've debated this before. IMO any metric that leaves out (rising) prices of fuel is totally missing the boat. They can talk about "core inflation" for consumer / producer prices all they want....but the true picture of inflation is seen by the middle masses in how much basic food and fuel costs, or education (which translates to property taxes) or health care costs (which often translates to either medical bankruptcy or heavier use of government subsidized services).

US inflation is dangerously misleading because it's mixed metrics, disconnected from un/employment and real wages.

[wiggin]

How would tight monetary policy translate into higher inflation? MPC forecasts only affect expectations, not actual inflation. So... you haven't explained anything.

[GGT]

How would tight monetary policy translate into higher inflation? MPC forecasts only affect expectations, not actual inflation. So... you haven't explained anything.

Hey, I only posted an "expert's opinion" saying their Monetary Policy Committee is downplaying inflation and leaving borrowing rates too low. I haven't seen an explanation anywhere else, and neither have you. Isn't that why you started this thread?

[agamemnus]

KK wiggin. KK. A reserve currency can weather shocks in input prices (ie: commodity prices from China and the rest of Asia) because in essence the liquidity of such currency is high, and thus speculation in the currency -- speculation which can raise inflation rates -- is lower than that of a non-reserve currency.

[GGT]

Here's what I really think. You guys are trying very hard to find technicals to explain things. Understandable, even the "experts" are foundering and disagreeing on what "technical analysis" means. But it's based on false or flawed premises.

The last few years should have screamed that traditional technical analysis (and conventional wisdom) is flawed during a global crisis, the likes of which we haven't seen since the Great Depression. But the "experts" are still looking backward to figure out what's happening in real time, and also how to forecast or project into the future. I'm no expert, but that's just stupid.

Forget the idea of decoupling. Forget old, traditional metrics to explain our immediate environment, or what's going on across the pond, or why it's going wonky in some places more than others. Currency plays, long or short the USD, the euro or pound sterling, yen or yuan. Traders, speculators, and bond vigilantes are everywhere on our planet, and they can move markets. High Frequency trading and synthetic derivatives have changed the whole "game play".

When it comes to inflationary prices, the only thing that really matters is....can the largest mass of people afford food, shelter, transportation, or being sick? Is public education affordable? Can people over the age of 65 afford to retire? How long can the Average Joe afford being unemployed or underemployed? Can people move UP on the income, skills or educational ladder? And who pays when they can't?

When more people can't than can, that's what I would label true inflation.

[wiggin]

We've debated this before. IMO any metric that leaves out (rising) prices of fuel is totally missing the boat. They can talk about "core inflation" for consumer / producer prices all they want....but the true picture of inflation is seen by the middle masses in how much basic food and fuel costs, or education (which translates to property taxes) or health care costs (which often translates to either medical bankruptcy or heavier use of government subsidized services).

US inflation is dangerously misleading because it's mixed metrics, disconnected from un/employment and real wages.

This is silly. Using my metrics, we can easily see what happens when my measure of inflation gets too low - Japan in the 1990s. You can argue metrics all you want, but the current low number corresponds to a pretty scary situation; I see no reason to tighten monetary policy over this.

Hey, I only posted an "expert's opinion" saying their Monetary Policy Committee is downplaying inflation and leaving borrowing rates too low. I haven't seen an explanation anywhere else, and neither have you. Isn't that why you started this thread?

Borrowing rates being low is loose monetary policy, not tight monetary policy.

KK wiggin. KK. A reserve currency can weather shocks in input prices (ie: commodity prices from China and the rest of Asia) because in essence the liquidity of such currency is high, and thus speculation in the currency -- speculation which can raise inflation rates -- is lower than that of a non-reserve currency.

You don't think there's a lot of speculation on the dollar? Also, I think the general wisdom is to never fight the central bank. If you do, you're likely to lose since they hold all of the power. Speculative attacks on a currency can only affect things when there's an artificial externally imposed limit on the bank's actions (e.g. an exchange rate regime or a precious metal standard or whatever). When the bank has control over the money supply, it can easily fight off speculative attacks regardless of their reserve status.

Obviously if you have a very small and illiquid currency this is not the case, but it's not like the pound fits that criterion.

The last few years should have screamed that traditional technical analysis (and conventional wisdom) is flawed during a global crisis, the likes of which we haven't seen since the Great Depression. But the "experts" are still looking backward to figure out what's happening in real time, and also how to forecast or project into the future. I'm no expert, but that's just stupid.

Forget the idea of decoupling. Forget old, traditional metrics to explain our immediate environment, or what's going on across the pond, or why it's going wonky in some places more than others. Currency plays, long or short the USD, the euro or pound sterling, yen or yuan. Traders, speculators, and bond vigilantes are everywhere on our planet, and they can move markets. High Frequency trading and synthetic derivatives have changed the whole "game play".

When it comes to inflationary prices, the only thing that really matters is....can the largest mass of people afford food, shelter, transportation, or being sick? Is public education affordable? Can people over the age of 65 afford to retire? How long can the Average Joe afford being unemployed or underemployed? Can people move UP on the income, skills or educational ladder? And who pays when they can't?

When more people can't than can, that's what I would label true inflation.

Whatever, you're willing to throw up your hands and forget about economics, but most of us aren't. The basic rules still apply even if particular applications thereof have been faulty. Clearly British inflation is derived from something, but I don't know what that is.

[GGT]

This is silly. Using my metrics, we can easily see what happens when my measure of inflation gets too low - Japan in the 1990s. You can argue metrics all you want, but the current low number corresponds to a pretty scary situation; I see no reason to tighten monetary policy over this.

Right. Using "your metrics" the US hasn't already lost a decade of growth, because you compare it to Japan?

Borrowing rates being low is loose monetary policy, not tight monetary policy.

Ah, a technical definition. Sorry, I mean tight as in rigid, stubborn, Unwilling to raise as needed.

You don't think there's a lot of speculation on the dollar? Also, I think the general wisdom is to never fight the central bank. If you do, you're likely to lose since they hold all of the power. Speculative attacks on a currency can only affect things when there's an artificial externally imposed limit on the bank's actions (e.g. an exchange rate regime or a precious metal standard or whatever). When the bank has control over the money supply, it can easily fight off speculative attacks regardless of their reserve status.

Tell the UK what they're doing wrong, then. When OPEC has control over the price of oil, all oil-dependancies are tested. Remember US summer two year ago, when gas hit $4/gallon?

*Go ahead and opine on the other "artificial externalities" fucking up the "technicals", I wanna hear that one. *

Obviously if you have a very small and illiquid currency this is not the case, but it's not like the pound fits that criterion.

The pound sterling is pegged to the USD. Most commodities (and oil) are.

Whatever, you're willing to throw up your hands and forget about economics, but most of us aren't. The basic rules still apply even if particular applications thereof have been faulty. Clearly British inflation is derived from something, but I don't know what that is.

What a load of crap. You can't figure it out, and the "Experts" can't figure it out. Therefore, something else must be at work beyond Exert Analysis? Technicals won't work because....uhm...technicals don't work in this environment? How can that Beeee?

[GGT]

Also, whenever any central bank gets to feeling too big for their britches, the bond vigilantes will remind them who has the real power......

[wiggin]

Right. Using "your metrics" the US hasn't already lost a decade of growth, because you compare it to Japan?

What? I don't get what you're trying to say.

Ah, a technical definition. Sorry, I mean tight as in rigid, stubborn, Unwilling to raise as needed.

The Fed has been very responsive, they just don't need to raise rates.

Tell the UK what they're doing wrong, then. When OPEC has control over the price of oil, all oil-dependancies are tested. Remember US summer two year ago, when gas hit $4/gallon?

*Go ahead and opine on the other "artificial externalities" fucking up the "technicals", I wanna hear that one. *

What did that have to do with what I said? Also, I don't know why Britain is experiencing so much inflation, which is why I started the thread.

The pound sterling is pegged to the USD. Most commodities (and oil) are.

Completely untrue, the pound is not pegged to anything.

What a load of crap. You can't figure it out, and the "Experts" can't figure it out. Therefore, something else must be at work beyond Exert Analysis? Technicals won't work because....uhm...technicals don't work in this environment? How can that Beeee?

Just because I can't figure it out and it's not obviously apparent doesn't mean that a rigorous economic analysis can't do it.

Also, whenever any central bank gets to feeling too big for their britches, the bond vigilantes will remind them who has the real power......

Central banks have nothing to do with bond vigilantes. That's a fiscal problem, not primarily a monetary one.

[GGT]

What? I don't get what you're trying to say. The Fed has been very responsive, they just don't need to raise rates.

But what you asked in the OP is more about UK's MPC than the US's Federal Reserve.

What did that have to do with what I said? Also, I don't know why Britain is experiencing so much inflation, which is why I started the thread.

And I gave you one explanation, according to some Experts: their MPC doesn't know what they're doing, or they think they can anticipate everything in the future (based on past experience), or they're just being too positive about their abilities to control inflation.

Completely untrue, the pound is not pegged to anything.

How do you figure that? What do you think the pound sterling is pegged to?

Just because I can't figure it out and it's not obviously apparent doesn't mean that a rigorous economic analysis can't do it.

Riiight. And you're too stupid to have looked around the 'net? Nah, implausible. You can't find what you're looking for because the Experts don't know any more than we do.

Central banks have nothing to do with bond vigilantes. That's a fiscal problem, not primarily a monetary one.

That's a power thing. Whenever central bankers think they hold the power in a currency or policy, the bond holders will remind them who REALLY holds real power. QE I and QE II have pretty much borne that out, wouldn't you say?

[Lebanese Dragon]

To clear up some things. All wiggin is saying is if the government lets people borrow money at a low interest rate, people will take out more loans. If people take out more loans this increases how much money people have. If people have more money they spend more, and are willing to buy more things, this in turn increased the demand on products, which will be one factor increasing the price increase of all goods. Thus since all good are getting more expensive, while we've increased the money supply, we've also "weakened" the dollar due to the "inflation" in the prices we've created, by having a "loose" loaning policy.

Question at hand is why is the UK's so high? They need to look at increase cost of their goods, increased spending by consumers, increase in money supply, various things to consider. Oil going up is an increase in cost of pretty much everything, due to the fact that it'll increase the transportation costs of everything, thus increase the cost to make everything. Some of that cost will be passed on to the consumer.

[GGT]

To clear up some things. All wiggin is saying is if the government lets people borrow money at a low interest rate, people will take out more loans. If people take out more loans this increases how much money people have. If people have more money they spend more, and are willing to buy more things, this in turn increased the demand on products, which will be one factor increasing the price increase of all goods. Thus since all good are getting more expensive, while we've increased the money supply, we've also "weakened" the dollar due to the "inflation" in the prices we've created, by having a "loose" loaning policy.

That's bubble economics. People borrowing at low interest rates doesn't really increase the money supply....it just increases the wealth effect (an emotional definition that can spur more buying, disconnected from reality).

Question at hand is why is the UK's so high? They need to look at increase cost of their goods, increased spending by consumers, increase in money supply, various things to consider. Oil going up is an increase in cost of pretty much everything, due to the fact that it'll increase the transportation costs of everything, thus increase the cost to make everything. Some of that cost will be passed on to the consumer.

Sure, and what's your point? Everyone sees an increase in oil, fuel, transportation. What is making the UK an outlier?

[Lebanese Dragon]

That's bubble economics. People borrowing at low interest rates doesn't really increase the money supply....it just increases the wealth effect (an emotional definition that can spur more buying, disconnected from reality).

You seemed to have a lack of clarity on the terms being used, I guess i do too , I probably should have said it increased the money in circulation, as opposed to money supply, which would mean to actually print more money.

I agree that this "bubble". as you call it, will last as long as the interest rate are low, and will have grown fastests at the beginning of the new rates being implemented, and then level off to maintain a steady growth throughout the time the interest rates are low. However, when the rates return to normal, likely the amount of money in circulation will go back down, as people stop taking out loans, and begin repaying loans.

However, ideally, and is the goal of the Federal Reserve with their current "loose policy" is that the money they have injected into the economy, firstly is spent multiple times aka each time it exchanges hands, thus brings more growth than just the original amount loaned, and secondly that some of the growth generated will get to a point that it can sustain itself when interates rates go back to normal. I think if you ask yourself why is the price of goods rising at the rate they are, then one must consider the increase in money in circulation. My second point, kind of hidden in that paragarph, is that actually these loans will have a lasting effect even when the rates go back to normal, so the bubble will never fully pop, because hopefully some of the growth generated in this extra spending will be permanent.

Sure, and what's your point? Everyone sees an increase in oil, fuel, transportation. What is making the UK an outlier?

They have really bad roads, duh. Anyway, I was not providing an answer to why the UK has such a higher amount of inflation, I was merely making sure everyone was on the same page in the discussion, because it didn't look like it to me.

[GGT]

I think.....it's hard to read your posts. I also think....our housing bubble can't be fixed by low interest rates. Too much inventory, too much confusion between banks and borrowers. Who the fuck can (or wants to) buy a foreclosed home at bargain basement prices, at 4% interest rates, when the banks and brokers can't make up their minds about value, appraisals, or risk? They won't even accept cash purchases in some areas.

Anyone can call Inflation what it is, without needing an Expert in Economics. When a working wage/salary can't keep up with the costs of food, fuel-energy, education, health care, or taxes.....things are inflated beyond what is affordable.

[agamemnus]

I told you what it is wiggin. It's an increase in commodity prices. Just look at them. Ask anyone who imports from Asian factories and they'll tell you their costs have shot up. The US doesn't feel it as much yet because our employment is lower than the UK's and because our currency is MUCH more of a reserve currency than the UK's. The UK's pound isn't a "small" currency, but it doesn't compare as a reserve currency against the $.

[Lebanese Dragon]

our housing bubble can't be fixed by low interest rates

Just to be clear when you first used the term bubble, you were saying that the low interest rates created a spike in money circulating, but that it was merely a bubble that would pop when the interest rate returned to normal? That's what I understood. And now we're talking about a completely different bubble, namely the housing market bubble.

I agree with you that we have infrastructure problems that people buying more stuff isn't going to fix, and I also don't pretend to have any specific insight as to why the UK has noticably higher inflation rates.

[GGT]

They are a damn ISLAND. They don't even have to import from Asia....they are simply stuck importing. Their financial services bubble has burst......

[GGT]

Just to be clear when you first used the term bubble, you were saying that the low interest rates created a spike in money circulating, but that it was merely a bubble that would pop when the interest rate returned to normal? That's what I understood. And now we're talking about a completely different bubble, namely the housing market bubble.

No, the bubble wasn't about money in circulation, but circulating DEBT disguised as money. In housing, the bubble was debt feeding the wealth effect. Zero down payment, ARMs, HELOCs, etc.

I agree with you that we have infrastructure problems that people buying more stuff isn't going to fix, and I also don't pretend to have any specific insight as to why the UK has noticably higher inflation rates.

And neither does wiggin. But we all like to speculate.