Where is inflation going?

[SimplySeb]

This is my first post so here goes...

Like most people I'm worried about inflation. My way of dealing wih stuff tends to be to try to learn everything I can about it, and use that to inform my decisions about how we go forward.

We have inflation running at about 10% give or take, but I pay more than 10% more for my food now than I did last year, and maybe 40% more than I did when we went into lockdown. My energy bills have more than doubles in 3 years, etc. etc.

As I see it, we print money for good causes, and give it away without any value being created in return. We started printing money in 2008/9 and called it 'quantitive easing' and continued printing trillions of pounds for fifteen years, and at the same time set the interest rate at near zero.

So the cat is out the bag, so to speek. We have already debased our money supply. We didnt see it for the past 15 years becasue the excess money went into house prices and the stock market, but now food prices are starting to rise too.

To tackle this the Bank of England has to raise interest rates back to normal, or ebven higher as they had to do in the 1970's. People are already stressed at 4%. What will they do at 14%? Default on their mortgages?

Wages aren't going up because they can't. If you increase the wages, that has to be paid somehow, and the only way to pay for it is to increase the cost of your goods and services, sack staff and work with less poeple, or in the case of the Public Sector, tax people or their employers to pay the Public Sector wages, and force those businesses to sack people and/or raise prices to deal with their increased tax bill.

I don't see how we get out of this. I see a lot of people struggling in my community at the moment, and I see home reposessions, unemployment and starvations in the future.

Tell me its not that bad.
Tell me someone knows how to get us out of the mess we are in.
What happens when we run out of magic money trees?

It looks like things are improving and OBR / other have said inflation will be much lower at the end of the year.

I happened to hear a bit today on radio re things not looking so depressing. Which was nice as it’s been tough for a few years.

I hope so.

We have savings so the interest rate being off zero after so many years of making nothing is positive for us.

I'm hoping the government won't put the cap on energy prices up now that energy prices have fallen but we shall see.

Inflation is monthly so 10% increase per month. That's why your food is more than 10% more expensive.

This blows my mind as it means certain things will double in price in less than a year - which I guess they have done.

I was shocked that media firms are increasing by inflation + (EE is going up by 13.9% and others by more) - that is a shocking increase and I can't see it ever coming back down once inflation decreases.

You really need deflation for a while once wholesale prices return to normal but I don't suppose that's great for the economy either.

This is what I heard

www.ft.com/content/8b10ceeb-3a62-4231-8ea9-199a96cac48f

2% by Autumn (not the 4%) which would be great

On googling for above, a few articles Guardian etc had 18% early this year I don’t think it got that high

Is that how it works?
I thought the reported figure was year-to-date? So inflation of 10.2% in January would be 10.2% up on the previous January, and February against the previous February etc.
10% overage a year for say 5 years is a real problem.
But it its say 10% compounded month on month over even a year, that takes us into a major depression the likes of which we havent seen in 100 years.

Yes, virgin just confirmed a 15% hike to me. Inflation plus CPI. I was expecting it though cost the Money Saving Expert guy talked about it. I'm also expecting Council Tax to up by maybe 7-8% becasue the council gets to hike their tax, but also the water company gets to hike their water charges and sexerage charges too. No doubt the ISPs are going to raise their prices by 15% as well.

And the energy bill hikes for everyone will be a nice April Fools' surprise if the Government dont extend the price cap. So a lot of very poor bunnies this Easter.

We have a little savings. Enough for a few months bills. But it stays in our current account for instant access incase I lose my job. It doenst earn any interest, but then even at 3%, that's maybe £150 a year at best, and I lose access to it with a cashpoint card.

But also I can do the maths. If you have say £5K in a bank at 3%, and inflation is running at 10% a year, the bank are guaranteeing you that you will lose 7% of your money a year. With only the risk of a bank holiday, and a guaranteed loss of 7% of the value of your capital, they will keep ahold of your savings and keep it safe. I cant see that as a good deal in anyone's book.

I also have a small ISA with Vanguard which I started last year and its running at a loss. But then the stock market is running at a loss. I figure if all goes to hell, at least I own shares in something as opposed to to a failing currency.

Inflation is measured yearly
So prices this month compared to this month a year ago

The current rate of inflation is largely due to the knock on effects of the war in Ukraine. As a one time shock effect, Inflation will fall as the world absorbs those costs though the prices won't fall (a fall in the rate of inflation doesn't mean prices fall,). The Tories will pretend this fall in inflation is due to their austerity, which is false. The current rate of inflation has very little to do with quantitative easing. Giving workers pay rises less than inflation won't stoke inflation.

Your post reads like it came straight from Tory central office.

Good.
I was panicking there for a bit.
That's still a doubling of prices for everything in 7 years on average.
Probably more like a doubling in 4 years for food. Maybe a doubling in 10 years for cars. Who knows.

But my wages won't be twice as much in 4 years time. I dont think my wages will ahve moved at all. And that's the problem I think most people are in and dont realise it.

You may get an extra 3% in your wages each year, but unless you have 50% of your household budgets spare (ie you are saving 50% of your wages) all I see is a world of pain for most people.

Its this maths that I'm trying to square away, and figure out a plan for before everything turns to shit.

My ISA is mostly in a blended fund with Vanguard.
I also bought like £500 of bitcoin on eToro, making sure to buy right at the top so I could enjoy them tanking. Just a toe in the water of something I don't understand. Nothing I'm not prepared to lose.

My mistake - thought it was monthly. Phew!

I dont know if that's right though, and its those mechanics I'm trying to work out. We printed trillions of pounds at zero% for 15 years instead of dealing with the issue in the economy in 2008. It seems to me we were just papering over the cracks and kicking the can down the road.

As someone else said, we may well be able to paper over the cracks and hold on for who knows how many more years, but the debasement of the currency has already happenned. We have already inflated our currency.

As I see it at the moment our moeny is close to being a dead parrot taped to its perch.

The effects of inflating our money supply are decreased purchasing power which is what we are starting to see. We saw it for a decade in stock market prices and housing stock, where the inflated money couldn't buy as much stocks in Apple or houses in Kent. No one cared (except the young), because the value of their houses, portfolios and pensions were all going up. So they thought they were getting richer, but I think for the most part all that was happening was their assets were being measured in pounds that were worth a lot less. They just couldn't see it that way 'cos they didn't understand what inflation was or what it did to prices.

Now of course they are finding out in food prices. But I think most people genuinely believe their bacon and eggs are going up in price, as opposed to their pound dropping in value.

At least that's the view I currently hold. I dont know if its right or wrong. I have to try to protect myself if things get worse, even though I hope they don't.

💐No problem. Thanks for heping anyhow, It made me think too.

This is also a problem for me. I have no debt. None at all. But I also have no house. I rent. So now, when I look at mortgages I ask myself, what does this mortgage look like at 10% or 12% or 14%. I'm old enough to remember th 1970's, but most people can't even remember interest rates before 2008, and the newspapers deliverately show a graph of BoE base rates only from 2008 and pretend that 4% is a high interest rate. Like people should be scared if the interest rate goes up.

Even a basic cursory check of interest rates that any sensible person would do when buying a house tells them that the average over the past two centuries is between 5% and 6%, so you'd be stupid to take on a mortgage that you couldnt service at the long term average.

Being caucious and looking ahead, I need to ask myself how high I think BoE will go, and for how long, and therefor how much can I afford to borrow. And if I'm wrong, I'm quids in, but altleast if I'm right, I wont be one of those who bought too much hosue and now have to sell it into a falling market and move to somewhere they can afford.

What I find depressing is that the prices aren’t ever going to come down. Once shops/businesses realise that people will pay it, what’s the incentive to reduce the price, even if inflation is reduced? My friend was jealous that I have a legacy ‘good’ deal for electricity of 32p per KWH and 32p for daily standing charge. Two or three years ago, people would have been shocked at that, now they’re jealous given that it’s 45p plus per KWH and 50p plus for standing charge. Disgraceful. I’m dreading my deal coming to an end in December.

Inflation won't go to 2% while we have a labour shortage. That needs to correct either by more workers coming on stream or by a recession destroying demand.
One other thing to consider is we are in the midst of the baby boomers retiring, they are the biggest generation.

Many economists are predicting a fall in inflation as the shock of the Ukraine/Russian conflict works its way through the system

Inflation predictions

I don’t understand any of this anymore.

what are the basics to start with?