Comments: One more heave

Possibly David,

But with real inflation experienced outside the cosey confines of the BOE at over 4.5%, (in this speak to any middle income earner about their experience), and a series of IR rises simply being added on to margins charged by business, don't bank on it.


Posted by Pete Balchin, Solicitor at August 9, 2007 09:27 AM

As far as I know, the MPC doesnt target the "real" inflation of a group of middle income earners.
They have one job to do, and one tool to do it with. And as is, they do not have to do too much more to achieve their stated CPI target.

Posted by Simon at August 9, 2007 10:22 AM

Pete, I hope you don't use a similar approach in your regular job. "I know all the hard evidence suggests this guy is guilty, but I was talking to some other bloke down the pub and he reckoned he was innocent!"

Anyway, it looks like rates are going to 6%. David, given you thought 5.75% was overkill, you must be becoming worried about the potential impact on the economy now? Do you think the MPC might be forced to reverse some of this tightening next year?

Posted by Sell Everything at August 9, 2007 11:36 AM

' Sell Everything',
The markets apparently expect some loosening next year, according to the inflation report "market participants expect
Bank Rate to peak at close to 6% by early 2008 and then drop
back; the projections are conditioned on that assumption."

If there's no rush to raise rates again, I wonder if they'll wait till the November inflation report before deciding whether to make the hike to 6%.

Posted by Ed B at August 9, 2007 11:58 AM

I guess Pete is concerned that higher 'real' inflation will eventually spill over into CPI; however wouldn't wage growth need to be pushed up first for this to happen, which so far hasn't occurred?

Posted by Ed B at August 9, 2007 12:07 PM


Dont see why that would occur. As you say, wage pressure is not evident. And more importantly, the "my personal real inflation is greater than published CPI" rant has been going on for many years. When was the last time someone said the CPI was overestimating their "real" inflation rate????

Posted by Simon at August 9, 2007 02:20 PM

Sorry Sell Everything,

You are wrong. If you look at the actual price growth experienced, this ends up being assumed into the inflation rate because of the many ways in which prices charged are increased unofficially...

Posted by Pete Balchin, Solicitor at August 9, 2007 02:34 PM

I may be being dumb, but that doesn't make much sense to me. Care to elaborate?

Posted by Ed B at August 9, 2007 02:41 PM


Put quite simply, take a lot of people who experience rising prices? They are going to ask for those higher prices themselves when doing the odd cash in hand job ... this is not in the inflation rate to begin with but the increasing momentum becomes asborbed in the end in the figure. This is of course particularly true with services, initially possibly even provided completely outside the official economy then the time lag ensures that the official figures catch up...

Of course there is also an argument however that this keeps a lid on inflation (Eg the Polish Plumber). Which presupposes that it is a service that can be done by immigrants and that it restricts over demand and provides supply side competition.

Posted by Pete Balchin, Solicitor at August 9, 2007 04:31 PM

Bonkers, Pete, and you're giving us those strange random thoughts again. The average is the average. Some people will experience higher inflation than the average, some lower. In fact there's a good argument that official inflation measures overstate true experience, because people switch from items that are rising sharply in price to those that are rising more modestly.

Posted by David Smith at August 9, 2007 05:25 PM


I would also mention the CPI, isn't the inflation most people experience anyway, the is measured by the RPI. (Which is why GB is rather naughty to try to confuse people all the time, just so he can keep public sector wages down)

The CPI is a target to allow us to compare across Europe, and that is the reason it was adopted.

However, because of this, when it was adopted, the inflation target was lwered from 2.5% to 2.0%.

Posted by kingofnowhere at August 9, 2007 07:05 PM

Over the last few years all we seem to hear is that inflation is about to relax and rates are coming down. In reality rates have gone up. I'm inclined to take what most pundits say with a large pinch of salt.

Posted by Boris Elhert at August 10, 2007 11:35 AM

Well according to all the Suicidal Sids on here, inflation on any measure other than targetted CPI has been rocketing, so real interest rates are surely at or close to zero now.

Posted by Simon at August 10, 2007 04:16 PM

Well things like taxes aren't included in cpi (as far as I am aware) neither is rents or mortgage costs. Taxes are going up, mortgage costs have too - to the man on the street this is inflation

Food and petrol have shot up too - unfortunately if they shoot up and stay there, the next year they get removed from the cpi indexing (if they stayed the same they do not add much weight to the cpi) - this still affects "man on the street" if his/her wages haven't risen to counter these rises.

Posted by Kev M at August 12, 2007 09:24 PM

Hi David,

The comments that you make are interesting because don't forget I am a lawyer probably with motre of a community based reach. The fact is that whether the BOE tell you it is the case or not, inflation is about 4.5 - 7.5% to the man in the street and there are very serious wage inflation pressures from employees.

That is experience from the street.

Regards ..

Posted by Pete Balchin, Solicitor at August 13, 2007 01:00 PM

You're becoming rather tiresome with your taxi drivers and "word on the street".

Posted by David Smith at August 13, 2007 09:46 PM

Maybe you are right but then Taxi Drivers statistically get economic predictions right more often than economits eh David?

Posted by Pete Balchin, Solicitor at August 14, 2007 12:13 AM

Oh and David,

Wage inflation is alive and well. So why aren't the unions pushing for higher wage settlements?

Posted by Pete Balchin, Solicitor at August 14, 2007 12:15 AM


Posted by F.Fox at September 30, 2007 09:52 PM