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

rick_chasey

Eh?

surrey_commuter

rick_chasey said:

Missed this chart

https://twitter.com/toby_n/status/1533029644575948800?s=21&t=6NRm82uqXPuXHMXvJOkFeQ

How can you have a negative number of people economically inactive?

rick_chasey

“Cumulative change”

rick_chasey

Really interesting podcast on the economist money talks on supply chains.

Basically the expert was explaining how the supply issue has steadily got worse and is currently at the nadir.

Causes are as follows:

1) covid lockdowns & mass illness hurt mainly the manpower for the supply chains - especially western ports which are a lot less automated. (US in particular).

2) those lockdowns also hurt the supply chain cycle. Apparently peak supply chain is autumn and winter and so supply chain forms use spring and summer to repair, fix, build etc. That was not possible as the lockdowns happened during peak demand so they were so far behind they now cannot catch up.

This has happened 2 years running and so the chains are very degraded at this point. You’re getting more accidents, fires, breakdowns etc.

3) consumer spending has changed substantially with consumers spending much more on physically large items like sofas, white goods etc which puts even more strain

So with all of that, it puts the gigantic Western stimulus and the subsequent inflation into some light.

Basically those in charge of the fiscal levers underestimated the shrink in supply as there were under reported big bottlenecks in the global supply.

The challenge the expert was saying is that there needs to be a bit of a break for a period of months to let the supply chains get back to proper heath. Currently that is difficult as demand keeps ramming stuff into the system.

Presumably a recession will sort that out…

skyblueamateur

rick_chasey said:

Really interesting podcast on the economist money talks on supply chains.

Basically the expert was explaining how the supply issue has steadily got worse and is currently at the nadir.

Causes are as follows:

1) covid lockdowns & mass illness hurt mainly the manpower for the supply chains - especially western ports which are a lot less automated. (US in particular).

2) those lockdowns also hurt the supply chain cycle. Apparently peak supply chain is autumn and winter and so supply chain forms use spring and summer to repair, fix, build etc. That was not possible as the lockdowns happened during peak demand so they were so far behind they now cannot catch up.

This has happened 2 years running and so the chains are very degraded at this point. You’re getting more accidents, fires, breakdowns etc.

3) consumer spending has changed substantially with consumers spending much more on physically large items like sofas, white goods etc which puts even more strain

So with all of that, it puts the gigantic Western stimulus and the subsequent inflation into some light.

Basically those in charge of the fiscal levers underestimated the shrink in supply as there were under reported big bottlenecks in the global supply.

The challenge the expert was saying is that there needs to be a bit of a break for a period of months to let the supply chains get back to proper heath. Currently that is difficult as demand keeps ramming stuff into the system.

Presumably a recession will sort that out…

We're finding things over the last 6 months start to come through again a lot quicker and not far off back to pre-pandemic levels.

The cost of carriage has also decreased substantially but is still over double what it was pre-pandemic. This will now be more then offset by sterling tanking to 1.20 over the last few months though

In short, supply is getting better but costs are still increasing.

Pross

I know increasing interest rates has been the traditional response to high inflation but I'm really struggling to see how the BoE thinks it will help at present as it doesn't seem to be consumer spending creating the issue. I assume it is just to try to show they are doing something and don't have any other weapons in their armoury.

pblakeney

Pross said:

I know increasing interest rates has been the traditional response to high inflation but I'm really struggling to see how the BoE thinks it will help at present as it doesn't seem to be consumer spending creating the issue. I assume it is just to try to show they are doing something and don't have any other weapons in their armoury.

Purposely slowing down the economy into a recession during a period of global high inflation doesn't appear too smart. Interest rates will have zero effect on the cost of living.
But then, what do I know?

rick_chasey

So any increase in demand just goes straight into price rises until supply increases. Arguably a supply bottleneck

So basically yes, they need to dampen demand.

Also, the Fed raised their rates and so to avoid sterling tanking even more (furling inflation further) BoE needs to raise too.

pblakeney

rick_chasey said:

So any increase in demand just goes straight into price rises until supply increases. Arguably a supply bottleneck

So basically yes, they need to dampen demand.

Also, the Fed raised their rates and so to avoid sterling tanking even more (furling inflation further) BoE needs to raise too.

The demand is unlikely to be dampened when it is food and energy.
If you want to cut the demand for Rolexes then fair enough but I doubt it will help.

My thinking is less demand, less supply, less jobs. Sterling tanks and exports are more viable. Then again, what do I know, especially when I want to buy some Euros soon. Ramp up that Sterling!

kingstongraham

Wouldn't higher taxes do the job of reducing demand better?

Or shouldn't increased energy and food costs reduce demand for everything else?

mully79

Rising interest rates means those buying on credit soon won’t be able to afford to without falling down a financial hole.

Paid £5.80 for a pint yesterday so instead of buying two I only had one.
I can’t see what economic benefit there is selling half the beer at twice the price. Just going to lose people jobs.

Easy decisions like reducing stupid “bad for your health “ taxes on alcohol could stimulate the economy while helping us keep our sanity.

rick_chasey

kingstongraham said:

Wouldn't higher taxes do the job of reducing demand better?

Or shouldn't increased energy and food costs reduce demand for everything else?

Sure but the BoE doesn’t do fiscal policy and their mandate is inflation.

I wouldn’t underestimate having to shadow the dollar in order to avoid a heavy devaluation.

skyblueamateur

pblakeney said:

rick_chasey said:

So any increase in demand just goes straight into price rises until supply increases. Arguably a supply bottleneck

So basically yes, they need to dampen demand.

Also, the Fed raised their rates and so to avoid sterling tanking even more (furling inflation further) BoE needs to raise too.

The demand is unlikely to be dampened when it is food and energy.
If you want to cut the demand for Rolexes then fair enough but I doubt it will help.

My thinking is less demand, less supply, less jobs. Sterling tanks and exports are more viable. Then again, what do I know, especially when I want to buy some Euros soon. Ramp up that Sterling!

Post Brexit, Sterling has tanked and not helped exports. The economy does need to realign but that will take a generation and an actual economic plan and vision so won’t be happening with Johnson in charge.

Just my opinion but I can’t see a tanking pound do anything other then fuel inflation. It had lost over 10% before rallying yesterday on news of the interest rate change.

I think they should have been bolder and raised them by 0.5% or 0.75%. The pain is inevitable, may as well get it out of the way ASAP.

focuszing723

Raising IR should lead to a stronger currency (attract foreign investment), which in turn should make imported goods cheaper. If nothing else, it's an international game of IR one up man ship.

Dorset_Boy

Problem is the US raised their interest rate by 0.75% and the UK by 0.25%. So the Dollar grew even stronger relative to the pound (and the euro) as a result.

Interesting to hear that SBA is seeing supply side improvements and the cost of shipping coming down, but supply side issues will remain whilst China has a zero covid policy.

Raising interest rates won't help the poorest who are struggling with their day to day essentials and a personal level, but at a more macro level, trying to make our currency stronger relative to the dollar has to help with the cost of those essentials.

It's a very difficult balancing act. A significant minority of the MPC wanted a 0.5% increase rather than the 0.25% we got.

rick_chasey

^^ that.

Demand is weaker in the Uk and a bigger proportion of the problems is straight up stagflation due to Brexit so it’s a tougher role.

skyblueamateur

Dorset_Boy said:

Problem is the US raised their interest rate by 0.75% and the UK by 0.25%. So the Dollar grew even stronger relative to the pound (and the euro) as a result.

Interesting to hear that SBA is seeing supply side improvements and the cost of shipping coming down, but supply side issues will remain whilst China has a zero covid policy.

Raising interest rates won't help the poorest who are struggling with their day to day essentials and a personal level, but at a more macro level, trying to make our currency stronger relative to the dollar has to help with the cost of those essentials.

It's a very difficult balancing act. A significant minority of the MPC wanted a 0.5% increase rather than the 0.25% we got.

Thanks. You have a better understanding of these things then myself and articulated the general point I was trying to make better then I could.

From an electronics point of view I think there is still major supply issues with semi-conductors but my industry definitely seems to be over the worst.

Even with the Covid lockdowns in China a lot of factories were still working as people were isolating in the dorms at the factories.

We had issues with delays at Shanghai Port but it seems to be a lot better of late.

Be interesting what happens on the run-up to Chinese New Year as that's always a difficult time.

focuszing723

I don't know if anybody has seen this before. It's a chart show UK historic interest rates. We have been at an unprecedented low. So really it's a case of bringing it back to historic norms.

Good for savers.

Pross

As a few have said, if raising interest does help why not bung rates up by 1% in one go and show some intent rather than creeping it up each month?

skyblueamateur

Pross said:

As a few have said, if raising interest does help why not bung rates up by 1% in one go and show some intent rather than creeping it up each month?

It's a balancing act as those on variable mortgages are really going to start feeling the pinch.

I think it's some of those in the middle who are in 6-700k homes, top of the range cars on PCP etc, etc who are going to feel the rate rise more then most as they are financed up to the hilt.

It does feel like no lessons were learnt post 2008.

rick_chasey

Pross said:

As a few have said, if raising interest does help why not bung rates up by 1% in one go and show some intent rather than creeping it up each month?

Risk of overshooting is even higher if you do big steps - so they like to raise, evaluate, and then continue.

rick_chasey

skyblueamateur said:

Pross said:

As a few have said, if raising interest does help why not bung rates up by 1% in one go and show some intent rather than creeping it up each month?

It's a balancing act as those on variable mortgages are really going to start feeling the pinch.

I think it's some of those in the middle who are in 6-700k homes, top of the range cars on PCP etc, etc who are going to feel the rate rise more then most as they are financed up to the hilt.

It does feel like no lessons were learnt post 2008.

It's pretty different to 2008. That was a gigantic financial crisis which then created the great recession.

This is a post-pandemic supply chain restriction causing heavy inflation.

Dorset_Boy

The savings level of those on middle and higher incomes has risen significantly over the last 2 years, so those who are not overly greedy and seeking a lifestyle on the never never should be able to absorb these interest rate rises reasonably well. Frankly if others in that bracket are leading a lifestyle fuelled by debt then tough shit if they have to change their ways as a result.

The issue is those on low incomes who hold debt.

But as Focusing repeatedly states with his graph, base rates remain ridiculously low in historical context - the average base rate since the BoE was founded is around 4.5% pa I believe.

Also as Rick says, the inflation is really supply side more so than demand side.

kingstongraham

If a thing cost £10 last year, and now purely because of input cost increases, it now costs £11, why would restricting demand so I can only afford to buy 5 of them at £11 instead of 6 of them at £11 make a big difference to inflation?

surrey_commuter

pblakeney said:

rick_chasey said:

So any increase in demand just goes straight into price rises until supply increases. Arguably a supply bottleneck

So basically yes, they need to dampen demand.

Also, the Fed raised their rates and so to avoid sterling tanking even more (furling inflation further) BoE needs to raise too.

The demand is unlikely to be dampened when it is food and energy.
If you want to cut the demand for Rolexes then fair enough but I doubt it will help.

My thinking is less demand, less supply, less jobs. Sterling tanks and exports are more viable. Then again, what do I know, especially when I want to buy some Euros soon. Ramp up that Sterling!

You have touched on an inconvenient truth that when economists talk about reducing demand what this actually means is personal misery through lost jobs, less overtime, smaller bonuses, increased mortgage payments.

There is an argument to index link everything and ride it out

surrey_commuter

rick_chasey said:

Pross said:

As a few have said, if raising interest does help why not bung rates up by 1% in one go and show some intent rather than creeping it up each month?

Risk of overshooting is even higher if you do big steps - so they like to raise, evaluate, and then continue.

rick_chasey said:

Pross said:

As a few have said, if raising interest does help why not bung rates up by 1% in one go and show some intent rather than creeping it up each month?

Risk of overshooting is even higher if you do big steps - so they like to raise, evaluate, and then continue.

Would seem like a perfect time to reverse QE

davidof

pblakeney said:

The demand is unlikely to be dampened when it is food and energy.

judging by the size of the average couch potatoe sitting in his / her overheated house there is a lot of slack there too

pblakeney

davidof said:

pblakeney said:

The demand is unlikely to be dampened when it is food and energy.

judging by the size of the average couch potatoe sitting in his / her overheated house there is a lot of slack there too

While this is true it is a failing that junk food is priced cheaper than the healthy easy option.
Easy option as in can’t be bothered cooking which is yet another issue.

surrey_commuter

So the Govt borrowed £14bn in May half of which was to service existing debt.

As inflation persists this number will only get worse

TheBigBean

surrey_commuter said:

So the Govt borrowed £14bn in May half of which was to service existing debt.

As inflation persists this number will only get worse

I don't mean to sound like a broken record, but how much of that went to the Bank of England and then back to the treasury? I'm curious how that amount is even included in the goverment's budget. Perhaps it is already included as a receipt.