Inflation - when is this going to end?

[Elbow beards]

Although Rees Mogg would love it to be, just so he can put a 3 year old up his chimney to sweep before winter

That **** would reopen work houses if he could.

 

[inbetween]

Our company were talking internally yesterday about the ability to raise wages with inflation and when to do it, if at all. The 7.5% those Felixstowe dockers are being offered sounds like heaven compared to what we could afford. It's just not possible to keep up, or take the risk of matching inflation, without severely undermining the business as a whole. So wages won't increase, at least not anything like inflation.

I just keep going back to when we moved house last year. A house went round the corner from where we used to live at over half a million after being on the market for one day at above asking price, to a first time buyer.

Estate agent told us that it's an increasingly common trend, fist time buyers jumping the queue on the property ladder and going big for their 'forever home'. Beside the fact that everyone gets itchy feet at some point, those guys are now facing renewing their mortgage at over 10% in 1-3 years time, after getting about 1.5% 18 months ago. I just checked for us and it would be around 5% today. On a mortgage of 400k, assuming they had even as much as 100k deposit, they'd be paying hundreds more per month. Frightening.

Even for us, a family with two working parents and some savings, very cautious and conservative with spending already, are having to pick and choose what we don't have in the future. Our kids don't understand but will adapt quickly but have already said no holiday next year most likely, jumpers instead of heating, investing in electric blankets and cut the weekly shop by 20%. Not sure it'll be enough. We don't want to do it, don't want to contribute to the decline by buying less and going without, but we have to now just to get the basics of home, food and energy paid.

Has anyone in power got the balls to challenge the energy companies on their profits? Why are they so high? What do they forecast for Q4? How much are they reinvesting? Do they realise the impact they are having on people's lives already, the thousands who would have survived this coming winter if they reduce prices?

The critical issue is everyone needs a pay rise to cope with inflation but right now we're slumping into a recession so many companies can't afford it, it's a perfect storm. It's also a unique problem in that inflation isn't being driven locally but rather globally. The price of energy just as an example has gone up because of factors we cannot control. The price of food and other goods is going up because of supply issues occurring globally post-COVID. All of this is why I think the BoE was incredibly stupid to increase interest rates, it'll make no difference and harm people more.

Ultimately this isn't a profit making crisis so attacking profits is not going to change anything because the fact is gas prices have increased by 500% since last year. The energy companies are making profits off the back of volatility and not outright profiteering.

Imagine if you ran a pub and the price of beer went up 500% in a year. You couldn't sell pints at the same price as before so you'd have to increase prices. However, what would you do if beer prices fell for a short period? You'd buy tons in and still sell it at the new price for easy profit. This is how the energy companies are making a lot of money but the reality is generally still the same, the price is still 4x/5x higher than what it was last year.

I don't think there is any solution other than the government has to step in and subsidise bills for those who need the help. The problem with this is it's extremely expensive and well the only way to pay for it long term is with tax rises and you won't see any Tory propose that one. I really doubt a windfall tax would raise enough, we're talking perhaps millions or maybe a billion if we're lucky. That amount isn't going to pay for people's energy bills until the Ukraine war ends which will likely carry on for years.

As I've mentioned on this thread so many times, we're in a proxy war with one of the largest economies and one of the world's largest gas producers. We cannot be surprised that things are going to get tough because this is the price of our choices. It's the right choice in my opinion but it's going to be difficult because of it.

 

[bluejon]

The critical issue is everyone needs a pay rise to cope with inflation but right now we're slumping into a recession so many companies can't afford it, it's a perfect storm. It's also a unique problem in that inflation isn't being driven locally but rather globally. The price of energy just as an example has gone up because of factors we cannot control. The price of food and other goods is going up because of supply issues occurring globally post-COVID. All of this is why I think the BoE was incredibly stupid to increase interest rates, it'll make no difference and harm people more.

Ultimately this isn't a profit making crisis so attacking profits is not going to change anything because the fact is gas prices have increased by 500% since last year. The energy companies are making profits off the back of volatility and not outright profiteering.

Imagine if you ran a pub and the price of beer went up 500% in a year. You couldn't sell pints at the same price as before so you'd have to increase prices. However, what would you do if beer prices fell for a short period? You'd buy tons in and still sell it at the new price for easy profit. This is how the energy companies are making a lot of money but the reality is generally still the same, the price is still 4x/5x higher than what it was last year.

I don't think there is any solution other than the government has to step in and subsidise bills for those who need the help. The problem with this is it's extremely expensive and well the only way to pay for it long term is with tax rises and you won't see any Tory propose that one. I really doubt a windfall tax would raise enough, we're talking perhaps millions or maybe a billion if we're lucky. That amount isn't going to pay for people's energy bills until the Ukraine war ends which will likely carry on for years.

As I've mentioned on this thread so many times, we're in a proxy war with one of the largest economies and one of the world's largest gas producers. We cannot be surprised that things are going to get tough because this is the price of our choices. It's the right choice in my opinion but it's going to be difficult because of it.

Fantastic post.

The one thing I would add though is that there are sections of the economy that are seeing double digit pay rises (finance, energy) for senior staff whilst the rest of us are told that pay rises in line with inflation could cause more problems. That in itself is seriously problematic for a society that is already struggling with deeply worrying levels of inequality. I think it's entirely possible we're in for a general strike this winter, especially as the incoming moron about to enter number 10 doesn't have a fucking clue what she's doing and i suspect is proud of herself when she does her shoe laces correctly.

 

[ChicagoBlue]

There's two in there ffs

And I answered them BOTH, but you said I didn’t even answer the question, ffs!

This all started with you being a dick about me answering a question about inflation, which you derided as a “textbook” answer that didn’t apply, then regaled me with the millions of people who have £0!

I forgave you the ridiculous hyperbole in the hope of a civil discussion that appears incapable of occurring, so I’ll leave you to your “drivel” that ignores the reality and wants to stop the world while we all figure out how to get free, or unpaid (or who knows what kind of) energy to the 30% of households with £0, which will magically fix textbook inflation.

Carry on…

 

[ChicagoBlue]

And this demonstrates far removed you are from knowing anything about the UK markets. I'm not having a go but you don't have a clue what's going on in the streets here

Because I’m not experiencing it, I’m incapable of reading about it and understanding it?

Fuck me, I’m so glad I wasted all that time in History class or reading about anything that happens outside the immediate vicinity of my existence!

 

[ChicagoBlue]

The critical issue is everyone needs a pay rise to cope with inflation but right now we're slumping into a recession so many companies can't afford it, it's a perfect storm. It's also a unique problem in that inflation isn't being driven locally but rather globally. The price of energy just as an example has gone up because of factors we cannot control. The price of food and other goods is going up because of supply issues occurring globally post-COVID. All of this is why I think the BoE was incredibly stupid to increase interest rates, it'll make no difference and harm people more.

Ultimately this isn't a profit making crisis so attacking profits is not going to change anything because the fact is gas prices have increased by 500% since last year. The energy companies are making profits off the back of volatility and not outright profiteering.

Imagine if you ran a pub and the price of beer went up 500% in a year. You couldn't sell pints at the same price as before so you'd have to increase prices. However, what would you do if beer prices fell for a short period? You'd buy tons in and still sell it at the new price for easy profit. This is how the energy companies are making a lot of money but the reality is generally still the same, the price is still 4x/5x higher than what it was last year.

I don't think there is any solution other than the government has to step in and subsidise bills for those who need the help. The problem with this is it's extremely expensive and well the only way to pay for it long term is with tax rises and you won't see any Tory propose that one. I really doubt a windfall tax would raise enough, we're talking perhaps millions or maybe a billion if we're lucky. That amount isn't going to pay for people's energy bills until the Ukraine war ends which will likely carry on for years.

As I've mentioned on this thread so many times, we're in a proxy war with one of the largest economies and one of the world's largest gas producers. We cannot be surprised that things are going to get tough because this is the price of our choices. It's the right choice in my opinion but it's going to be difficult because of it.

Exactly!

This is the reason countries control their currencies, so they can float debt (if absolutely necessary) to get out of these painted corners. However, as you rightly said, the Piper has to be paid sooner or later, and the devaluation of currency and fluctuations in interest rates are the more immediate costs, while taxes are the longer term (once the economy stabilizes and begins its next growth phase) solution.

The raising of interest rates has to be markedly sharp to affect business, but even small increases adversely affect consumers, which is why I agree that BoE/Fed interest rate increases need to be very judicious. They can magnify the ill effects of a supply driven inflationary crisis, especially when demand is already somewhat restrained.

 

[Blue Maverick]

When the lights start going out at night, business goes up in flames to claim insurance (firefighters will be on strike so good luck putting that out), bins not collected, food etc going scare due to port closures, people dying of hypothermia, fucking riots on the street, if I was an executive I’d be locking myself away, I don’t think we’ve seen anything on the scale of anger that’s going to happen in the next few months.

 

[hilts]

Although Rees Mogg would love it to be, just so he can put a 3 year old up his chimney to sweep before winter

One way to keep warm

Put some wood int hole mister

 

[ChicagoBlue]

Quick question (well maybe not so quick).

The 2008 financial crisis resulted in trillions being pumped into economies, subsequently the response to Covid was similar. However during Covid, GDP fell substantially across the developed world. I’m by no means an economist but hasn’t that resulted in the velocity of money within the economy to go out of kilter. Money pumped in, with constrained spending (e.g no new cars, no leisure activities etc) resulting in money being saved. Then coming out of Covid, a splurge of spending in the last 12 months against a backdrop of low interest rate providing even more cheap money.

My background is in Applied Physics but that sounds like a very unstable system with no damping to me.

I’m sure there must be some mathematical modelling applied which looks at the stability of the economy. But to me as a relative layman, the monetary policy since the 2008 crisis seems mad, almost setting up a perfect cycle of boom and bust for years to come.

The post-2008 recession problem was the anemic, albeit it consistent, growth led to artificially low interest rates being leveraged by those with power (both political and economic), while the working families of the country struggled with low savings growth, low or non-existent wage growth, but at least inflation was kept in check by the global slowdown. Indeed, economic activity reduced the price of oil to such low levels that there was no place to sell it, no more ships at anchor to put it in, and for a brief period you could get PAID to take oil from a producer!

The world felt out of kilter to many, but the rich took great advantage of the “free” money to load up on leveraged assets, while Main Street still suffered.

The Pandemic served only to direct money lower on the totem pole, Yo the consumer that does need to spend it, thus priming the economy at a time when it desperately needed it. For many, the thinking was “pay them to keep working rather than putting the company out of business and paying them unemployment!” However, for many, even unemployment was better than their reduced wages on the job…but the consumer kept spending, and both monetary policy and fiscal policy worked to keep the economy afloat, and interest rates low.

For many, who found there was much less on which to spend their money (no commute, no lunches out, no drinks after work or even on the weekends, no football, etc) this created a windfall of sorts, and led to a consumer with pent up demand for goods and services AND the money to pay for them!

Pandemic relief came and BOOM! Supply of desirable goods, and even services, was in demand again, but the supply was still heavily constrained, because China was still locked down due to their Zero COVID Policy! Want a semiconductor? See you next year! Want to build anything that needs a semiconductor? Good luck finding the storage space for the products you can 95% manufacture but not sell, just to keep your workers employed and ready for the supply chain to improve!

And here we sit. Supply problems creating inflation, as opposed to greater than normal demand forcing prices higher. The bad part is that many, many companies who have been hampered by the supply chain shortages, and gave put up their prices, have also had to increase their wages. This creates what they call here “sticky inflation!”

You can make all the macro changes you like to interest rates and QT, but that manufacturer now has permanently higher costs and will be loath to EVER reduce his prices…until forced by others in the free market trying to undercut him! And, they’re in the same position!

This is how monopolies and oligopolies are so destructive, yet we are going to be faced with artificial “oligopoly-style” pricing until someone blinks and tries to steal market share!

And we will all suffer as a consequence, both from the higher prices and the inflationary effects on our debt!

Rock, meet hard place!

 

[ChicagoBlue]

When the lights start going out at night, business goes up in flames to claim insurance (firefighters will be on strike so good luck putting that out), bins not collected, food etc going scare due to port closures, people dying of hypothermia, fucking riots on the street, if I was an executive I’d be locking myself away, I don’t think we’ve seen anything on the scale of anger that’s going to happen in the next few months.

And, it’s not just in the UK. Let’s hope it’s going to be a short, mild winter in Northern Europe this year, or an all out economic war might be next.