UK CPI above inflation target once more

whiteonion

http://www.bloomberg.com/news/2011-01-21/u-k-inflation-surge-due-to-one-time-shocks-boe-s-posen-says.html
The CPI in the UK has risen 3.7% in December, the official inflation target is 2%. They say that inflation should subside and the rise in CPI was due to "one-time shocks". However inflation has been above the official targets since 2009 until the brits get someone like Paul Volcker I don't think inflation will go away.

amacachi

"one-time shocks" like the VAT increase? Oh wait...

whiteonion

amacachi wrote: »

"one-time shocks" like the VAT increase? Oh wait...

They seem hell bent on propping up asset prices no matter what the consequences are. Wouldn't surprise me if the even went so far to change the inflation target to 4%.

ardmacha

Given the importance of the UK as a trading partner, presumably some of the money printed there ends up in the ROI economy, which is probably a good thing!

whiteonion

ardmacha wrote: »

Given the importance of the UK as a trading partner, presumably some of the money printed there ends up in the ROI economy, which is probably a good thing!

Inflation is never a good thing. It erodes the standard of living for normal people.

30 years ago families were much bigger and yet you could support your entire family on one salary. This days couples with 2 kids have difficulties making ends meet even though both parents are working full time.

This is a consequence of inflation.

Anonymous1987

whiteonion wrote: »

Inflation is never a good thing. It erodes the standard of living for normal people.

Inflation is bad news for savers however it also makes debt such as mortgages and loan repayments more manageable. Something we could certainly do with in Ireland.

Inflation also encourages investment as simply holding money will see its value while investing this money will either preserve or increase its value given a return on investment.

whiteonion

Anonymous1987 wrote: »

Inflation is bad news for savers however it also makes debt such as mortgages and loan repayments more manageable. Something we could certainly do with in Ireland.

Inflation also encourages investment as simply holding money will see its value while investing this money will either preserve or increase its value given a return on investment.

So the erosion of purchasing power is a good thing?
Making average people poorer is a good thing?
Is this what you are trying to say?

Anonymous1987

whiteonion wrote: »

So the erosion of purchasing power is a good thing?
Making average people poorer is a good thing?
Is this what you are trying to say?

No, I just thought I would point out the aspects of low to moderate inflation which aren't all that bad.

Anonymous1987

While it is troubling that the BOE has consistently failed to meet its target, the following may give some indication why the BOE is not acting.

But a jump in inflation caused by higher commodity prices and a rise in VAT—in an economy with spare capacity—is quite different from one caused by excess demand and a pay-price spiral. It intensifies the squeeze on households from other tax rises and curbs consumer spending. Although the central bank is facing calls to tighten monetary policy soon, that would be warranted only if there were signs of inflation getting embedded into expectations and feeding through to higher wages....

The economy clearly retains quite a bit of spare capacity—the main reason why the Bank of England has insisted that the flare-up in inflation will be temporary. The bank has lost credibility as the inflation overshoot has persisted and its forecasts have proved incorrect. But the best way to regain its credentials is not to make a panicky move now but to hold its ground, tightening policy only when it is clear that the recovery can cope with the fiscal clampdown. That should be apparent by late summer. And that is when the bank is likely to start restoring more normal monetary settings, by raising the base rate from its all-time low of 0.5%.

http://www.economist.com/node/17963355?story_id=17963355

whiteonion

They have been failing to meet their targets for two years now, clearly you can't blame that on temporary factors.

Anonymous1987

whiteonion wrote: »

They have been failing to meet their targets for two years now, clearly you can't blame that on temporary factors.

Sure and the temporary factors are likely making the situation worse, though you have to consider what are the implications of raising interest rates for the nascent recovery?

whiteonion

Anonymous1987 wrote: »

Sure and the temporary factors are likely making the situation worse, though you have to consider what are the implications of raising interest rates for the nascent recovery?

Inflation is the destroyer of economies. It is better to have a recession than to have inflation.