I have already noted this morning that the general public is little enamoured with the endeavours of the UK government. It is fair to say that economists appear little more impressed, based upon a survey published by the Financial Times. They produced this result when 100 were asked for their opinions:
I am sure that the two or three per cent who thought that things were going to get better in 2022 must have had a reason, but I suspect that it was down to ideology. I put myself in the 60 to 70% to think that things are going to get worse. It is very hard to see how the combination of Covid, Brexit, short-term inflation threats, rising private debt and asset bubbles add up to anything but a significant threat to well-being which this government is wholly unwilling and unable to address.
It seems that fewer than 20% of economists think that there are grounds for optimism in 2022. The rest are more closely attached to the real world. This is going to be a bumpy ride.
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So you now concede inflation is a threat?
There is short term inflation
That does not mean it is a long term threat
Honestly, what inflation threat? Any government can instantly kill inflation by doing austerity. The bigger issue lies in the fact that since there is no tax on holding cash (roughly 6%), interest rates on liquid deposits cannot fall significantly below 0%. An effectively negative interest rate has both the positive effects of encouraging investment and consumption while not issuing additional currency, which means that the government bask in deflation by paying off debts aggressively rather than fear it. The fact that loans will be issued at 0% interest also means that anyone in debt that is holding onto liquid deposits has a strong incentive to pay that debt off instead of letting money disappear. Inflation as anti hoarding measure has the downside that it both requires and encourages more debt than is truly necessary to run the economy. After all, you cannot pay off debt with more debt and you would rather see your debt be eroded by inflation than pay it off.
Ooooh – Joe’s very active at the moment isn’t he?
Bless.
Look Joe – I’ll make it easy for you – the threat of inflation is really the worry that BoE (or should we say ‘the Government’) will over react to it and put interest rates up because the rich rentiers that the Government actually represent will feel that they are losing out on gouging more out of an already depressed economy and hard pressed, over indebted citizens.
Is that better?
Now take it easy Joe – don’t over do it – you’ve got the whole year ahead of you know?
I accept that inflation is a “threat”. It is a threat that Charlton might win the FA cup this year, or England win the next two Test matches. One should always keep these things under review and if the facts change then change one’s mind.
It is true that prices are higher today than a year ago. Once energy price rises filter through to household bills they will be higher still. This we know and it is already baked in…. and it is bad news for people on limited incomes that are not rising.
But the real issue is “will this lead to continuously rising prices over the next few years?”….. and on this point I think not.
Businesses are complaining about higher costs….. but the REAL complaint is higher costs that cannot be passed on to customers because the market will not bear higher prices (businesses care about margins, not costs per se). It is dangerous to infer too much from the break down of the data but it appears that non-essential items are not going up in price at anything like the overall rate. So, it seems most likely that once the summer comes, inflation (which the CHANGE in prices) will decline again.
I do fear that the UK might suffer Brexit related inflation – as imports cost more and our decline in wealth (relative to our neighbours) gets reflected through a declining exchange rate and some inflation that this might imply… but it is a slow burn issue and the cure for this is not higher interest rates but to join the Single Market.
I entirely agree with you
Agree about the single market, but disagree that a declining exchange rate need have the effect you say, as the government can simply purchase the currency. It must be careful when it does this, of course, but it has some ability to control the exchange rate.
Only some, at best
Perhaps ‘the two or three per cent who thought that things were going to get better in 2022’ are benefiting from the rise in stock market values.
I read an article How American Capitalism Profits on Death on the World Socialist Website https://www.google.com/url?q=https://www.wsws.org/en&sa=U&ved=2ahUKEwiRw6TVu5r1AhUSiFwKHfkGB-QQFnoECAAQAg&usg=AOvVaw3e2mBQUgVBbNzYlmoZR9Dr (which I cannot vouch for) that as Covid-19 deaths rose in USA so also the stock market rose, and this is a deliberate policy to increase the death rate among the poor and economically inactive. Do the connections made here seem plausible to you?
Sorry the link above doesn’t help. This goes to the article ‘How American Capitalism Profits on Death’ https://www.wsws.org/en/articles/2022/01/05/pers-j05.html?pk_campaign=newsletter&pk_kwd=wsws