BBC

UK inflation is tipped to show a sharp fall when official figures for December are released later.

Analysts polled by Reuters expect the Consumer Prices Index to have dropped sharply for the month, to an annual rate of 2.7%, from 4.1% in November.

The headline Retail Prices Index rate of inflation is predicted to drop below 1%, from November's annual rate of 3%.

Many economists expect the inflation rate to continue to slide in 2009, prompting fears of deflation.

Now, I'm not sure where they are getting this information for 2009. After everything that has gone on in the last year, with all the talking heads and 'experts' giving us the low down on how the value of the pound has been shattered, and how we have this huge trade deficit with the rest of the world for white goods, cars and more.

Quick heads-up on that news story - it's a load of politically inspired twaddle.

We DO import most of our goods.
The pound HAS shattered in value by, on average, 20% against most other currencies. This makes our imports 20% more expensive.

Gordon Brown WILL be printing lots of new money this year, though he's removed the requirement from the BoE to publish just how much they are printing - can't think why. This will further increase inflation as the pound devalues further and our imports get even more expensive.

The mad scrabble to discount goods in retail stores before Christmas and in the January sales was only a short-sighted temporary measure, and will not be sufficient to decrease what promises to be pretty high inflation this year.

MOST importers of goods (that's wholesalers too) have already jacked up their wholesale prices by, on average 20% in January. By the end of January, you will see many, many high street retailers passing that on to customers.

It IS going to be a tough year, and inflation IS going to be rather high, despite even the deflationary pressures of the housing market.

Originally Posted by Biped

BBC

UK inflation is tipped to show a sharp fall when official figures for December are released later.

Analysts polled by Reuters expect the Consumer Prices Index to have dropped sharply for the month, to an annual rate of 2.7%, from 4.1% in November.

The headline Retail Prices Index rate of inflation is predicted to drop below 1%, from November's annual rate of 3%.

Many economists expect the inflation rate to continue to slide in 2009, prompting fears of deflation.

Now, I'm not sure where they are getting this information for 2009. After everything that has gone on in the last year, with all the talking heads and 'experts' giving us the low down on how the value of the pound has been shattered, and how we have this huge trade deficit with the rest of the world for white goods, cars and more.

Quick heads-up on that news story - it's a load of politically inspired twaddle.

We DO import most of our goods.
The pound HAS shattered in value by, on average, 20% against most other currencies. This makes our imports 20% more expensive.

Gordon Brown WILL be printing lots of new money this year, though he's removed the requirement from the BoE to publish just how much they are printing - can't think why. This will further increase inflation as the pound devalues further and our imports get even more expensive.

The mad scrabble to discount goods in retail stores before Christmas and in the January sales was only a short-sighted temporary measure, and will not be sufficient to decrease what promises to be pretty high inflation this year.

MOST importers of goods (that's wholesalers too) have already jacked up their wholesale prices by, on average 20% in January. By the end of January, you will see many, many high street retailers passing that on to customers.

It IS going to be a tough year, and inflation IS going to be rather high, despite even the deflationary pressures of the housing market.

Except that inflation figures includes the import cost increase. Given the need of foreign producers to cut back on their profit margins to retain custom, and the fact that the Euro is going to go down like a Russian submarine over the next six months, the net increase in import costs will be negligable anyway.

I'd be interested on why you think the Euro is going to go south parapauk?

Originally Posted by Ord_Sgt

I'd be interested on why you think the Euro is going to go south parapauk?

The 'PIGS' economies - Portugal, Ireland, Greece and Spain, are in far more trouble than we are - Spain is looking at 25% unemployment soon. They'll either have to massively renegotiate the terms of Euro membership, or leave, if they fancy a recovery. Remember what the ERM did to us? Either way, I can't see confidence in the Euro holding long term.

I think that all depends on whether the pound continues to slide too - it's just plummetted again after the latest RBS and other banking news, and the BoE hasn't begun printing £1,000,000 notes yet.

Originally Posted by Ord_Sgt

I'd be interested on why you think the Euro is going to go south parapauk?

It is a widely held belief that trade and financial figures from many of the other EU members (which are released later that the UK’s) will show they are in as bad a, if not worse, position as the UK. It would also appear that there is a lot of pressure on the European Bank from many member states, particularly those that derive a large part of GNP from tourism, to devalue the Euro. A few states are even talking about leaving the Euro although that is probably political bluster rather than political fact.
The fact is that the pound has already started a recovery against the Euro and many foresee an even greater recovery once all the financial statements are published.

UK inflation will come later; not this year, but starting slowly just before the next election in 2010 (Brown definitely hasn't got the nuts to call an election this year, while he's behind in the polls and people are starting to blame him).

Remember that a £1,000,000,000,000 debt is forever, and rushing to print money this year (as opposed to next) isn't important in the grand scheme of things. Five or six % inflation for the five years of the next parliament will wipe nearly a quarter of the value of this debt away, so why worry?

But if you were thinking of selling your house to pay for your retirement, or emigration to somewhere sunny and a little more civilised, then tough.

Well the Euro was steady at about $1.59 last year - now at $1.29 and falling steadily.

Not as fast as the pound of course but still struggling. The Euro has much the same problems as the pound, too many of the big countries have borrowed heavily and believe in current myth of buying yourself out of trouble. In many ways, the Euro is more vulnerable because interest rates can't be moved quickly enough to react and because the one shape fits all policy plays havoc with some economies. Some smaller countries are teetering on crashing out of the system (known by some as the PIIGS). If that happens, confidence in € will be shattered but it is unlikely investors will buy into the pound, the greenback will look safer. No logic in this belief in the $ but this is high level gambling/investment we are talking about - it is all about confidence not necessarily economics.

Never mind Euro/pound parity. How long before we get dollar parity?

Edited to add: must type faster

What they really mean is the essentials that doubled in price in the back end of 2007 (when they were busily massaging the figures to show that they hadn't), whilst they haven't come down, they haven't actually gone up either. Smoke and mirrors, as usual.

Originally Posted by Markintime

Originally Posted by Ord_Sgt

I'd be interested on why you think the Euro is going to go south parapauk?

It is a widely held belief that trade and financial figures from many of the other EU members (which are released later that the UK’s) will show they are in as bad a, if not worse, position as the UK. It would also appear that there is a lot of pressure on the European Bank from many member states, particularly those that derive a large part of GNP from tourism, to devalue the Euro. A few states are even talking about leaving the Euro although that is probably political bluster rather than political fact.
The fact is that the pound has already started a recovery against the Euro and many foresee an even greater recovery once all the financial statements are published.

And would you believe I'm about to start writing a chapter in my thesis about how economic integration doesn't work in states that depend on tourism!

The fact is that the UK is ahead of the curve, and that's why things look worse now than the facts present in six months time might suggest.