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.

Exactly the same for me. Also in the South East. Two houses listed at 1.25 and 1.35 million sold within 10 days in our village within the last month. Plenty of people still have money!

Not really, so few of them in proportion to the wider workforce that it won't make any real difference to the average figure.

Everyone I know who doesn't work for the NHS, local government or teach has had an above inflation pay rise. It's more I'm not paying X for Y, than we can't afford to pay X for Y. We have a small amount of cash in the bank savings but the majority we have invested either as cash long term or in assets which are rising in value. As long as wages keep up with inflation I don't think the current 20-50 somethings really care what inflation sits at, we personally would rather have cheap mortgages and loans with inflation at 9% than expensive mortgages to bring down inflation.

No... she was in for several weeks and collapsed UK Gilts, these Gilts recovered after Hunt and Sunak got in but they are now worth even less than under Truss, this is fundamentally why mortgage rates are very high and the Govt is now paying billions in extra debt interest payments.

Pension funds are now sitting on trillions of paper losses, we are yet to see the worst of Tory mis management.

The £/$/euro rate is neither here nor there & other countries spent similar amounts on Covid support, yet have not seen the corporate greed the UK has, which is the main reason our inflation is so much higher..... Still have one of the worlds highest energy prices.... why??????

Working from home is under appreciated, basically a pay rise for people who now don't need to spend money on commuting therefore have more money to spend, one factor among many.

People on benefits have got an inflation linked increases so are not affected, neither are those in social housing or those who have no mortgages/fixed at low rates. Most affected are middle and lower income workers in the private sector whose wages have not gone up and don't have any inflation protection, large mortgages and not entitled to any help.

Also, why aren't Sunak and Hunt being told to give in their resignations since right now, under their governance, gilt rates are higher than they were under Truss and Kwarteng? Sunakonomics/Huntonomics obviously a disaster for the UK!

The government physically gives poor people money. The government needs to find the money to give them. Which is what they need richer people for.

Richer people get tax breaks which is not the same thing. That’s the money from what richer people have earned/ manufactured/ produced which is ultimately what makes the wealth So they need to ensure enough people are doing that.

The divide between rich and poor is the worry. Ideally it should be much closer than the massive gap we currently have so that the government doesn’t need to do so much and the country is steady.

Sorry this is incorrect
The 10% increase in benefits didn’t take effect until April of this year- by then total inflation since the last increase was around 19%. In addition, most necessities like food have had price inflation well above the average of 19%. So the increase in benefits helped, but did not cover all the added costs caused by inflation. Not to mention the fact that benefits are already low and a 10% increase often only means an extra £20 a week or something. Well paid workers getting a 4% pay rise would get more £ extra per week than anyone on benefits from the annual increase. Last I looked poor people don’t require less food or less heat than the well off.

Renters in the private sector are harder hit than anyone with a mortgage thus far - this includes those on housing benefit as those benefits did not increase as much as rent did. The annual increase in average rent has far outstripped the annual increase in mortgage costs for most home owners. Articles talking about “desperation” when a average family’s mortgage has gone up by £50 a month completely fail to note that over the same time period (past two years) average rent has gone up by £250/month for the same average 3 bed property . Housing allowance or housing element ofUC has not, so many renters have been forced to look for even cheaper private rented housing. Which is already substandard, did you know that in the private rented sector you are twice as likely to have a home that doesn’t meet the minimum safety standards for human occupation than you do in the social housing sector?

Also the damage that Truss and Kwartang inflicted on the economy did not magically evaporate when they left office. They kicked us when we were already down and Sunak is trying to get us out of a deep hole. It was all under Tory governance, so the Tory party is to blame, but you can’t blame Sunak/Hunt for what is currently happening.

There are certain things people have to spend money on - food, fuel, housing etc. They have all gone up in price.

There are still plenty of people around with money as well - luxury goods, holidays, expensive pampering treatments etc are still selling well.

Many expensive restaurants are still packed out.

Higher interest rates does usually force down inflation, although it can take ages.

I think there's going to be more pain, before it eases. We've done all this before - it used to be known as Boom and Bust Britain.🙄

Because we import energy. It’s quite obvious.

And gilt values are falling because of higher interest rates. Higher interest rates were not caused by Truss being in office for a few weeks. Don’t you really believe that interest rate rises now are because of Truss being in office for a few weeks and not 15 years of quantitative easing? Really? When you print trillion pounds and produce nothing to show for it, it will cause inflation. And high interest rates will follow. Tanking gilts. Basic economics.

Sunak, Hunt, May, Osborne, Cameron, Brown and Blair would like you to believe that someone ranked the economy in 6 weeks and they had nothing to do with it over 25 years. Don’t fall for it.

No Gilt yields are a result of a lack of confidence in the UK's ability to pay its debt and the BoE has to keep raising rates to make returns seem worthwhile but the underlying cause is a lack of confidence, yields now above the Truss budget and way above the US 10 year rate, with similar central bank interest rates.

As i said, other countries also printed huge amounts of money to pay for the GFC and Covid, they also import energy, yet have much lower inflation, esp food inflation, how you think that is linked to QA is anyones guess.

UK with NS oil/gas should be better off in this regard, with a decent energy policy but we haven't got that & we did not intervene quickly enough on domestic or business energy prices as whole sale ones fell.

Truss isn't the only cause of UK inflation, i never said that, corporate greed is.

The boe pretty much has only one tool to reduce inflation, interest rates. So even when we see cost push inflation rather than demand pull they still only have that solution to deploy.

if you only have a hammer, every problem looks like a nail

agreed with you

It’s difficult. If it’s supply side not demand led they still only have interest rates.

I was thinking about this earlier so I agree with your post. Glad to see others feel the same

But the Govt has levers, price controls for example, reform of Ofgem and their ridiculous energy price formulas.

They could also look at competition between supermarkets, there appears to be none.

Plus it’s not improving. The other day talk from Ukraine is the dam flooding will push up food prices more.

You can’t flood the ‘bread basket of Europe’ and not see huge repercussions - both to them sadly on humanitarian level but also goods sold, it likely doesn’t impact US so much so it’s easier to deal with their domestic led inflation

Trouble is BoE is not the government, they are just the mopping up guys

These are not levers. They are a recipe for disaster.

we don’t produce enough energy. The answer is to produce more of our own. Like the US does.

Yes the US is more protected due to this, although not sure about the no new licences part for oil and gas currently proposed

How would spending more money on infrastructure or creating a universal basic income reduce inflation? Both of those would increase inflation. If your intent is to reduce inflation those are bonkers ideas.

we don’t produce enough energy. The answer is to produce more of our own. Like the US does.

I would happily see a nuclear power station in every city and county. Pissing around with windmills butters no parsnips.

The gov does yes, but it feels like they’ve broadly abdicated responsibility for inflation to the boe holding them accountable for hitting the target but without the range of tools available

A lot of energy retailers have gone bankrupt, the profit margin is less than 5% in general.

The oil and gas companies who have made very high profits already pay super taxes (they pay special levies which effectively double the rate of tax they pay compared to other companies). The potential for additional taxes on them in the UK has deterred them from investing more in the UK and reduced the amount of jobs they would create. If we levied price controls on them, that would lead to invest being cancelled and probably push the pound down (making all foreign imports more expensive).

Supermarkets have a lot of competition eg look at how Aldi and Lidl are picking up customers.

We are facing problems because as a country we dont manufacture enough and we don't make good use of oil and gas reserves due to restrictive legislation. We have also scared away a lot of investment.

Oil companies don't make investment decisions based on short term taxes but they'll tell you they do, to avoid them.

Take the tax off setting of clearing up redundant oil rigs, worth billions.

When the Supermarket industry is making billions in profit, then there is no competition, Sainsbury and Tesco are, this year, paying out the largest dividend since 2015...
2021/22 profits of the big 3 supermarkets were twice that of pre-pandemic.

Aldi and Lidl, between them, have just 17% of the UK share of the market.

we don’t produce enough energy. The answer is to produce more of our own. Like the US does.

Increasing the gas storage we had would have made a huge difference.

https://inews.co.uk/news/business/energy-crisis-why-uk-gas-storage-winter-blackout-concerns-1937340