How is inflation high when everyone is so poor?

[Orchidgal]

Please explain to me like I am three.

The explanation I have received is:

Everyone saved loads during the pandemic and the government printed and handed out loads of money.

So, there is too much money sloshing about in the economy, causing prices to rise (inflation) and so the government put interest up to stop people spending and borrowing more.

Except that bit about there being loads of money so needing to reign everyone in doesn't make sense to me. Everyone I know is financially stretched.

As far as I see it prices going up has nothing to do with people ‘having too much money’. So why is higher interest rates the answer?

I don’t geddit.

Printing money devalues the pound.

This.

An easy way to understand it is to look into what happened in Germany in the 1920s when the market was flooded aggressively with printed money, which resulted in hyperinflation.

Some basic problems have been caused directly by Russia in Ukraine.

Much of our supply of fertilisers came from Russia & Ukraine. Before the invasion we were paying £260 a ton. Now it's over £900.

Which puts up the price of most agricultural produce, grass (for dairy) etc.

Ukraine was a major agricultural producer.Their wheat and oil crops have been reduced and disrupted. There is less wheat and oil available on the international market, more buyers competing for it. Price goes up.

Wheat & sunflower oil are in everything from fish fingers, to digestive biscuits to barbecue sauce. Price goes up.

That's why the U.K. govt (of either persuasion) needs to start taking food security seriously.

food being insufficient will be far worse than food being merely expensive !

"The bank sent us a letter returning the 1,000,000 marks we had in our savings as not worth managing. The letter had a 6,000,000 mark stamp on it"

Because people are not poor. At least, not in the way they want to be.

you only have to go to a shopping centre at a weekend to see where everybody’s money goes. Meals out, constant shopping for ‘stuff’.

we are fucked as a society.

‘but why shouldn’t I have it? Everybody else does!’

An abundance of credit is one of the worst things that happened to us.

My parents lived and worked in Germany in the 1980s and I have a few of those multi-million mark notes around the place somewhere!

This is pretty much a spot on summary (as depressing as it can be...)

Companies smelt blood when they increased prices and saw that people will indeed pay more. As a business they have no "moral" grounds to reduce their prices.

Warren B. has mentioned in an interview.

His manager at some train company came to him and said "We can and should increase our prices", he said "Customers wouldn't pay", manager said "Let's try it."

They increased prices and customers paid.

Warren B. said that first time in his life he saw an uplifting of prices, until this time, he saw prices come down in real terms.

An abundance of credit is one of the worst things that happened to us

Au contraire. For some people - particularly those that bankrolled it by buying the right sort of government - it was the best thing that happened to them.

Along with distinguishing can't/won't, should be the ability to known when "us" really means "you". And vice-versa.

It is mainly caused by the war in Ukraine.

In theory they shouldn't be rare .... enough were printed. Although given their value, they were probably more precious as fuel.

Please do not attack me. But what did truss and kwarteng do, exactly, that ‘ruined the economy’? Yes they had budget plans but surely these never happened? Isn’t it more long term factors that are at play here? Happy to be proved wrong!

And then Hitler....

I don't have any answers but if feels extremely unfair on renters and anyone with a large mortgage, as the interest rises mean 100s extra per month. Whereas when the banks crashed in 2006 there was a concerted effort to prevent repossessions, it feels like this time BofE and government don't care about that. The ways it's reported on BBC that if people have to sell their home (to do what?!) or move somewhere they don't know, have no friends or family and don't have work, it's no biggie! There seems to be no care about the human impact of massively rising mortgage costs.

@Joey2323 They spooked the markets and investors

I credit the Ukraine war for most of the inflation (but there are other factors, too). We are very dependent on imports, so when the oil and prices went up, so the price of everything went up (fuel costs for transport etc.). This happened in all Western economies, even the US.

This.

Basically they came in, threw the rulebook out which said governments have to show where they are getting the money for tax cuts from, and generally showed they hadn't got a clue. At that point the pound started looking like a very bad bet and the Bank of England had to step in (repeatedly) to ensure pension funds and other financial institutions didn't go bust.

This was all done in the face of every accepted expert warning it would happen.

And now we'll be paying for it for years. The pain hasn't even begin yet. Look at the mortgage deals being pulled (again).

Indeed. Certainly when I did my history it was an accepted fact that it was the Weimar republics economics (or lack thereof) that resulted in Hitler being manoeuvred into power ("Elected" is a bit strong, really).

It's why postwar Germany has been so obsessive about inflation and the value of the DM. And why it accepting the Euro was such a big deal.

Everyone I know is financially stretched.

Not everyone is, though. I mean; I'm feeling like the poor relation of most of my friends right now 😅 They're moaning about the costs of things, but still booking random holidays to the Caribbean, and buying expensive things; and eating out a lot. There's been a stampede of people booking days out, probably related initially to the Tesco Clubcard change, but now it's just people going to all the places everyone else went for full price - which isn't cheap. There's lots of new £850k houses, and new pregnancies.

I'm sat in a café now, and it's heaving. It's been manic everywhere I've been recently. Theoretically, everyone is tightening their belts, but it's never been harder to get a table for a drink/lunch locally! The ice-cream van queues are miles long even at the ones that charge £4.50 for a 99. The funfair with a reputation for being an absolute rip-off as it charges £5.50 for a game of hook-a-duck was packed for the whole week it was here.

I don't think higher prices have necessarily impacted on spending as much as you'd presume, they've perhaps just made it less comfortable.

If Mumsnet is anything to go by, most people have paid their mortgage off in their 20’s and therefore have lots of disposable income.

I vaguely recall that just before the Atlantic cod population collapsed, some Newfoundland fishermen were complaining there was no need for quotas as they were catching more than every.

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

Maybe we are seeing similar here ? I believe it's called a last hurrah ?

This. I was furloughed and on significantly less money than normal, for four months. Then one month on normal money (my notice period), then seven months redundant.

I didn't 'save loads'. It took me another year to restore my finances.

Everyone isnt poor. People want it all. And overstretch themselves and find themselves in anever ending cycle of working hard to afford more and more. Its consumerism gone maf.