Macroeconomics, the economy, inflation etc. *likely to be very dull*

TheBigBean

rick_chasey said:

Not so much a conspiracy but the advantage of placing chief economists at big financial institutions is you can pick their brain every now and then 🙃

QE increases the money supply. Arguing whether it is M0 or not is semantics and irrelevant. The Bank of England doesn't even report M0 any more.

Here's a M4 increase graph

rick_chasey

So inflation without QE in the last 10 years would have been….?

All the evidence suggests what’s causing inflation is restricted supply across the economy combined with pretty punchy demand (propped up by real fiscal profligacy)

pblakeney

rick_chasey said:

So inflation without QE in the last 10 years would have been….?

All the evidence suggests what’s causing inflation is restricted supply across the economy combined with pretty punchy demand (propped up by real fiscal profligacy)

Which as it is a worldwide situation cannot be controlled by the BoE.

rick_chasey

pblakeney said:

rick_chasey said:

So inflation without QE in the last 10 years would have been….?

All the evidence suggests what’s causing inflation is restricted supply across the economy combined with pretty punchy demand (propped up by real fiscal profligacy)

Which as it is a worldwide situation cannot be controlled by the BoE.

Sure.

But what is the singular brief for the BoE’s decision on rates?

(Pretty much all central banks have raised rates)

pblakeney

rick_chasey said:

pblakeney said:

rick_chasey said:

So inflation without QE in the last 10 years would have been….?

All the evidence suggests what’s causing inflation is restricted supply across the economy combined with pretty punchy demand (propped up by real fiscal profligacy)

Which as it is a worldwide situation cannot be controlled by the BoE.

Sure.

But what is the singular brief for the BoE’s decision on rates?

When a situation is outside of your control it is best to come to terms with that.
Affect what you can, accept what you can't. State the case.

rick_chasey

Broadbent did tbf in the quote I posted upthread

Raising rates slows growth down.

pblakeney

rick_chasey said:

Broadbent did tbf in the quote I posted upthread

Raising rates slows growth down.

But the rises have not been proportional to inflation so I don't think the reason is to control inflation. This is more interest rising in response to inflation. That the rise has been so small is an indicator to me that they are rising reluctantly and as small as possible.
I am no economist but I cannot see high* inflation and zero interest rates happening.

*Relative. This is still fairly average inflation just some are too young to remember.

TheBigBean

As stated above this is expected to be the first of a number of rises.

pblakeney

TheBigBean said:

As stated above this is expected to be the first of a number of rises.

Unfortunately inflation is expected to outstrip those rises.
Remember that all these energy increases haven't really been factored in to inflation yet.

rick_chasey

pblakeney said:

TheBigBean said:

As stated above this is expected to be the first of a number of rises.

Unfortunately inflation is expected to outstrip those rises.
Remember that all these energy increases haven't really been factored in to inflation yet.

So if you read the previous minutes the consensus was that the inflation was going to be short lived because it was thought to be related just to supply issues caused by lockdowns, and the UK was still in corona related slowdown due to omicron.

TheBigBean

At the start of 2021, “transitory inflation” was the phrase on the tip of every central banker’s tongue – the start to 2022 couldn’t be more different. With the term “transitory” all but banned by the Federal Reserve, we have seen a great repricing of market expectations for the path of rates over the coming months.

pblakeney

rick_chasey said:

pblakeney said:

TheBigBean said:

As stated above this is expected to be the first of a number of rises.

Unfortunately inflation is expected to outstrip those rises.
Remember that all these energy increases haven't really been factored in to inflation yet.

So if you read the previous minutes the consensus was that the inflation was going to be short lived because it was thought to be related just to supply issues caused by lockdowns, and the UK was still in corona related slowdown due to omicron.

I think they are wrong about being short lived, but what does little old me know?
Time will tell but I'm guessing 5%+ for 2 years minimum. Is that short lived?

rick_chasey

The minutes this time suggest that it’s not as transitory as they thought.

TheBigBean

pblakeney said:

rick_chasey said:

pblakeney said:

TheBigBean said:

As stated above this is expected to be the first of a number of rises.

Unfortunately inflation is expected to outstrip those rises.
Remember that all these energy increases haven't really been factored in to inflation yet.

So if you read the previous minutes the consensus was that the inflation was going to be short lived because it was thought to be related just to supply issues caused by lockdowns, and the UK was still in corona related slowdown due to omicron.

I think they are wrong about being short lived, but what does little old me know?
Time will tell but I'm guessing 5%+ for 2 years minimum. Is that short lived?

This isn't really a hot take. There's already been a year of 5% inflation.

pblakeney

TheBigBean said:

pblakeney said:

rick_chasey said:

pblakeney said:

TheBigBean said:

As stated above this is expected to be the first of a number of rises.

Unfortunately inflation is expected to outstrip those rises.
Remember that all these energy increases haven't really been factored in to inflation yet.

So if you read the previous minutes the consensus was that the inflation was going to be short lived because it was thought to be related just to supply issues caused by lockdowns, and the UK was still in corona related slowdown due to omicron.

I think they are wrong about being short lived, but what does little old me know?
Time will tell but I'm guessing 5%+ for 2 years minimum. Is that short lived?

This isn't really a hot take. There's already been a year of 5% inflation.

I've been saying it was coming from the budget 2019.

Edit - A search on this forum came up with a post from April 2018 saying higher inflation was on it's way.

morstar

pblakeney said:

TheBigBean said:

pblakeney said:

rick_chasey said:

pblakeney said:

TheBigBean said:

As stated above this is expected to be the first of a number of rises.

Unfortunately inflation is expected to outstrip those rises.
Remember that all these energy increases haven't really been factored in to inflation yet.

So if you read the previous minutes the consensus was that the inflation was going to be short lived because it was thought to be related just to supply issues caused by lockdowns, and the UK was still in corona related slowdown due to omicron.

I think they are wrong about being short lived, but what does little old me know?
Time will tell but I'm guessing 5%+ for 2 years minimum. Is that short lived?

This isn't really a hot take. There's already been a year of 5% inflation.

I've been saying it was coming from the budget 2019.

Edit - A search on this forum came up with a post from April 2018 saying higher inflation was on it's way.

But in all fairness we get the coldest winter ever predicted every October.

pblakeney

morstar said:

pblakeney said:

TheBigBean said:

pblakeney said:

rick_chasey said:

pblakeney said:

TheBigBean said:

As stated above this is expected to be the first of a number of rises.

Unfortunately inflation is expected to outstrip those rises.
Remember that all these energy increases haven't really been factored in to inflation yet.

So if you read the previous minutes the consensus was that the inflation was going to be short lived because it was thought to be related just to supply issues caused by lockdowns, and the UK was still in corona related slowdown due to omicron.

I think they are wrong about being short lived, but what does little old me know?
Time will tell but I'm guessing 5%+ for 2 years minimum. Is that short lived?

This isn't really a hot take. There's already been a year of 5% inflation.

I've been saying it was coming from the budget 2019.

Edit - A search on this forum came up with a post from April 2018 saying higher inflation was on it's way.

But in all fairness we get the coldest winter ever predicted every October.

Yeahbut, it wasn't just me saying it.

pblakeney said:

"...economic forecaster...probably raise interest rates...expectation of GDP growing...positive outlook...


The upgrade stands in sharp contrast to the expectations of other respected economic forecasters, such as the International Monetary Fund, that Britain will experience a further slowdown this year after recording its slowest growth since 2012 last year. UK growth dropped to 1.8% in 2017 from 1.9% in 2016.

Analysts at the Office for Budget Responsibility, the government’s independent forecaster, revealed a sharp fall in growth expectations alongside the budget in the autumn. They forecast that the rate of expansion would fall to 1.4% this year before dropping further still to 1.3% in 2019, amid a deterioration in consumer spending triggered by the Brexit vote.

Consumer spending has fallen as a consequence of weak wage growth and the fall in the value of the pound in the aftermath of the EU referendum, which drove up the cost of imports.


Inflation is expected...which is expected...The NIESR said it expected...


The performance of the economy could have been a lot worse without the rebound in global growth, the NIESR added: UK economic growth would have been around 1.2% last year as a consequence of the EU referendum, instead of 1.8%. “The contribution of the global recovery to the UK has been critical,” the thinktank said.

There are, however, risks ahead should the Brexit talks fail. The NIESR said its forecasts were reliant on Britain achieving a soft Brexit or retaining almost-full access to the EU market. Failure to reach a deal and Britain falling back to trading with the EU using World Trade Organization rules would lead to a long-term annual loss in GDP per capita of up to £2,000, or almost 6%, relative to the current expectations."


Predictions smedictions. Hopes offset by other predictions, followed by other hopes then a warning. Excuse me while I curb my enthusiasm. Not wrong yet. Not yet.

rick_chasey

Interesting conditions in the US. Inflation is particularly high (higher than in Europe), which is presumably partly as a result of the monster Biden stimulus.

If you break down where the price rises are going however, it's not in wage prices but there's been a big rise in corporate profits. So it's not so much that costs have risen as much companies have just been charging thicker margins and people have paid them...

So in theory there is quite a big of headroom for firms to cut profits to pay their staff more before you get into the sort of wage/inflationary spiral that was a feature of the 70s

pblakeney

rick_chasey said:

So in theory there is quite a big of headroom for firms to cut profits to pay their staff more before you get into the sort of wage/inflationary spiral that was a feature of the 70s

You cannot be serious.

rick_chasey

Sure why not?

pblakeney

rick_chasey said:

Sure why not?

It was being said by John McEnroe in my head but asking firms to cut their profit voluntarily is a big ask. Then ask their shareholders.

TheBigBean

The ECB has finally realised that inflation might not be transitory, but any move on rates and QE is very political. Really highlights the problems of a single currency.

rick_chasey

pblakeney said:

rick_chasey said:

Sure why not?

It was being said by John McEnroe in my head but asking firms to cut their profit voluntarily is a big ask. Then ask their shareholders.

Yeah look most firms aren't public and ultimately with inflation the staff will demand wage rises to cover the cost, so it's not unreasonable.

Obviously won't happen everywhere but if the labour market is tight, which it is, then it should happen.

What really mean is that the way it's worked out there is headroom for wage rises before that becomes inflationary, which is not what your usual stuck-in-the-70s-analysis would suggest.

pblakeney

I'd agree that you are correct in principle.
Realistically not going to happen though. Just my opinion.

surrey_commuter

rick_chasey said:

pblakeney said:

rick_chasey said:

Sure why not?

It was being said by John McEnroe in my head but asking firms to cut their profit voluntarily is a big ask. Then ask their shareholders.

Yeah look most firms aren't public and ultimately with inflation the staff will demand wage rises to cover the cost, so it's not unreasonable.

Obviously won't happen everywhere but if the labour market is tight, which it is, then it should happen.

What really mean is that the way it's worked out there is headroom for wage rises before that becomes inflationary, which is not what your usual stuck-in-the-70s-analysis would suggest.

Despite being an old codger I am finding this new fangled inflation an interesting concept. Purely anecdotally it seems that price rises are very lumpy ie if you are going to do it then go with 10-15%.

I do think Rick is barking mad but my employer has justified miserable across the board annual pay rises as being in line with "cost of living" so I am intrigued to see if they continue this year

rick_chasey

UK is a bit different, but similar idea.

Irony is of course the biggest productivity bounce the UK has seen since the crash (for people in work) is when they all started WFH.

TheBigBean

Yesterday, £28bn of Government bonds rolled off and for the first time in years, the proceeds won’t be reinvested by the Bank of England.

The BoE is also selling £20bn of corporate bonds it holds.

surrey_commuter

TheBigBean said:

Yesterday, £28bn of Government bonds rolled off and for the first time in years, the proceeds won’t be reinvested by the Bank of England.

The BoE is also selling £20bn of corporate bonds it holds.

Well I am going to take that as good news even if it seems to imply that it needed a crisis to find enough buyers for new issues.

If the BofE used pretend money to buy the bonds that it will now sell for real money what will it do with the profit?

TheBigBean

surrey_commuter said:

TheBigBean said:

Yesterday, £28bn of Government bonds rolled off and for the first time in years, the proceeds won’t be reinvested by the Bank of England.

The BoE is also selling £20bn of corporate bonds it holds.

Well I am going to take that as good news even if it seems to imply that it needed a crisis to find enough buyers for new issues.

If the BofE used pretend money to buy the bonds that it will now sell for real money what will it do with the profit?

It just adjusts its balance sheet. It had £895bn of assets. Now it has a bit less. Less pretend money if you like.

surrey_commuter

TheBigBean said:

surrey_commuter said:

TheBigBean said:

Yesterday, £28bn of Government bonds rolled off and for the first time in years, the proceeds won’t be reinvested by the Bank of England.

The BoE is also selling £20bn of corporate bonds it holds.

Well I am going to take that as good news even if it seems to imply that it needed a crisis to find enough buyers for new issues.

If the BofE used pretend money to buy the bonds that it will now sell for real money what will it do with the profit?

It just adjusts its balance sheet. It had £895bn of assets. Now it has a bit less. Less pretend money if you like.

This is what my brain can not comprehend.

In my world they used pretend money to buy a £20bn asset, they are selling the asset for 20 billion real pounds.

So, I can see why you say they have £20bn less pretend money but what do they do with the real money?