Inflation

[longfingernails]

Inflation is out of control. Why won't the Bank of England put interest rates up?

The alternative is to cut public spending more, and earlier - let tight fiscal policy soak up the effect of easy monetary policy. That would be acceptable to me, but a second package of cuts is probably not politically sellable. If they had made bigger public spending cuts in the Budget things would have been better.

Inflation is nothing more than a tax - a tax on prudence. Inflation hasn't quite as important an economic issue as Labour's debt mountain yet, but it is getting there, fast.

Of course, political idiots take sanctuary in inflation as a cure to debt. The Guardian is particularly culpable on this - their disdain for those who "squirrel their money away" is typical of the intellectual vacuity of the left.

www.guardian.co.uk/commentisfree/2010/jan/23/welcoming-back-inflation

I don't really believe in the mindless "progressive/regressive" labels, but seeing as even Cameron has run up the white flag, it is obvious that inflation is an incredibly "regressive" form of taxation.

People have been living in the bubble of unrealistically low interest rates for years.The historical average is about 8% and many have never known and wouldn't cope above 3!

According to todays' standard, interest rates are going up, (secondhand info from DH).

The reason rates have not gone up so far is that ordinarily there is a link between growth (i.e. an overheating economy) and inflation. This time the economy is not overheating and price rises are being caused by taxes (VAT rise) and increased prices for necessities (oil, food, which is partly the result of pressure on resources, poor wheat harvest, utility companies making enormous profits and, again taxes (petrol)).

Because the inflation this time may not be linked to growth it will not necessarily be "cured" by a rate rise. Rather, the impact of a rate rise will be mortgage defaults and companies finding it more expensive to borrow (so poss further cuts to overheads). There are some indicators that inflation may settle in the medium term: anticipated wage increases are low (2%) and the impact of the public sector cuts have not worked through the economy. The Bank of England will be taking those factors into account as well as looking what is driving price rises.

Whatever the drivers, inflation is unacceptable. Further public spending cuts are probably prudent, even if politically difficult.

Mm, there is an argument in favour of more public spending cuts, although I guess the ones we're havign haven't worked through yet so their full impact won't be felt for some time. Could be that they are enough to exert downward pressure on prices. Not sure that increasing rates will do it - in fact it could have the opposite result.

This does not include the VAt increase or oil so god knows what is next

The inflation figures are quite worrying, however with economic growth still sluggish and with no scope for any sort of fiscal stimulus I think we do have to look to have a loose monetary policy until the recovery is assured.