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"So the Bank of England increase base rate to ease cost of living crisis. Isn’t that an oxymoron? I admit I am not an economist but inflation is normally caused by increased consumer spending outpacing supply right? But THIS crisis is caused by runaway gas/oil prices & war in Ukraine impacting on the supply of wheat, sunflower oil and fertiliser! But hey, just when people are struggling because their money isn’t going as far, let’s also increase the cost of borrowing!" People need to have more financial restraint. Buying tat they don't need and paying it off at a few pounds a month is not sustainable. The only loan people should need is a mortgage. Anything else and they should save up for it. PCP car loans are one of the worst examples of this. | |||
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" PCP car loans are one of the worst examples of this." Agreed - they should be banned. | |||
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"Inflation is caused for many reasons: Shortage of goods supply caused by supply chain difficulties. Wage Rises. Worker shortages. Increase in the money supply. Fossil Fuel increase in wholesale cost. Shortage in fossil fuel caused because of supply chain difficulties. A war !! Unexpected demand for certain products. Chip shortages in the car and computing industry. Speculative investments (ie holding supply offshore (like oil Tankers) and waiting for the price to rise. Shipping Containers (allegedly) being held back, so it creates supply chain problems in the Global Market. etc etc etc." All very valid examples. But all basically boil down to supply via demand. Presumably the rise in interest rates is the attempt to quell the borrowing that could help fuel demand. Borrowers have had it very cushy for over a decade; they’ve had plenty of time to build a cushion against rate rises. | |||
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"So the Bank of England increase base rate to ease cost of living crisis. Isn’t that an oxymoron? I admit I am not an economist but inflation is normally caused by increased consumer spending outpacing supply right? But THIS crisis is caused by runaway gas/oil prices & war in Ukraine impacting on the supply of wheat, sunflower oil and fertiliser! But hey, just when people are struggling because their money isn’t going as far, let’s also increase the cost of borrowing!" Ite definitely a head scratcher so just hope they know what they are doing. I read the BBC article on it today and seems there is no easy solution. Also they mention that Turkey has gone the other way and cut rates, though they started a lot higher. Apparently cost of living there has increased 70% so guess they have to try a new approach | |||
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" All very valid examples. But all basically boil down to supply via demand. " But just to say supply-and-demand is a bit like saying 'the postman wears grey trousers'. We all know that, but it doesn't explain anything more. Each period of inflation has its own unique set of circumstances - not least of which is a global pandemic, still in full swing in China with regard to industry being closed down because of their extraordinary lockdown/s policy. A war in Ukraine and Russia's belligerence with regard to threatening supply to the West. Most of Europe is suffering a labour force shortage. etc etc etc as the King of Siam once said. | |||
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" All very valid examples. But all basically boil down to supply via demand. But just to say supply-and-demand is a bit like saying 'the postman wears grey trousers'. We all know that, but it doesn't explain anything more. Each period of inflation has its own unique set of circumstances - not least of which is a global pandemic, still in full swing in China with regard to industry being closed down because of their extraordinary lockdown/s policy. A war in Ukraine and Russia's belligerence with regard to threatening supply to the West. Most of Europe is suffering a labour force shortage. etc etc etc as the King of Siam once said. " Does the root cause or trigger make a big difference to the fiscal polices to tackle it? Economy has gone through similar cycles of boom/bust since time immemorial. We’ve been in a fantasy world of low and ultra low interest rates for far too long. This has distorted so many investment patterns. A correction is long overdue. Like I said the examples are perfectly valid but boil down to supply and demand be it of labour, money, raw materials, energy, parts or anything else. Naming 6 or 7 out 10,000 causes does not explain much more. The minutia if the supply or demand makes little difference once the cycle gets hold. Sentiment and confidence play a big part until changes work through and rebalancing occurs, one way or another. Wake me up when interest rates start getting past 4%. In the meantime yawn. | |||
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"Yes, Absolutely it does when you are trying to work a Policy that gets to the root of fixing it. For example, if it was just Fossil Fuel driving inflation then that being the root cause, finding fuel alternatives would fix the inflationary pressure derived from it. Minutia is very important at all times in economic policy. Just saying it's just supply and demand chaps is naive at best and criminal at worst. " But of course. That’s like saying it gets dark when the Sun sets. If Inflation hits today. New fuel strategies take years to develop, some take decades. So what do you do next? By the time you bring any meaningful pressure of supply side something else will be pushing elsewhere. Interest rates will go up. Prices will still go up. Wages might go up for some. Long term strategies will be lucky to hit mid cycle next wave. Pain and some chaos will ensue until things stabilise or some parties have rinsed enough out of the system (the real reason to inflation right?) @at end goto :start But as you were. Interest rates went up .25 to still a relatively historic low of 1%. Now please tell me in a month or two whether it makes one iota of difference what the prevailing rationale will be for increasing rates to 1.25% and then 1.75% by Sept? Maybe 2% by year end. Assets will change hands. That’s the whole point of it. Fuck all is the answer. Am an out and out capitalist. But i can see the writing on the wall. Hence the last few decades where the system is entirely corrupted with so called neo-con and cronyism. None of the age old economic paradigms work. Losses ste socialised whilst profits are privatised. No moral hazard or true bankruptcy capitalism for the “too big to fail” outfits. Housing markets propped up because too much is at stake. Climate change, wars, resource depletion, mass migration, huge population rise putting pressure on infrastructures. And we fret about rates going up from 0.75% to 1% and argue a out the minutia drivers. As I said, yawn. Wake me up when they breach 4%, that will be when it’ll get interesting. We have not even seen the first drop in the Ocean on this cycle impact yet. There’s much more excitement planned.  | |||
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