As the Office for National Statistics has reported this morning:
- The Consumer Prices Index (CPI) rose by 3.9% in the 12 months to November 2023, down from 4.6% in October.
- On a monthly basis, CPI fell by 0.2% in November 2023, compared with a rise of 0.4% in November 2022.
- The largest downward contributions to the monthly change in both CPIH and CPI annual rates came from transport, recreation and culture, and food and non-alcoholic beverages.
- Core CPI (excluding energy, food, alcohol and tobacco) rose by 5.1% in the 12 months to November 2023, down from 5.7% in October; the CPI goods annual rate slowed from 2.9% to 2.0%, while the CPI services annual rate eased from 6.6% to 6.3%.
So, as I long ago predicted, inflation is now tumbling towards two per cent with the very real risk that it will overshoot the Bank of England target since the impact of many of its interest rate rises have yet to be felt, and the true scale of the downturn that they gave generated has not hit us as yet.
What else is there to say? Not a lot except to suggest that one day we will look back and wonder why it was thatwe let unelected people impose mayhem on the country in pursuit of an economic goal over which the one instrument available to them - the interest rate - had precisely no influence whatsoever whilst having enormous capacity to cause harm in every other way.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Perhaps the goal of the Bank of England should not be to “ensure inflation is below 2%”, but to “enable the economy to flourish equally and fairly”.
If only
My heart is gladdened in that you think we will look back and question this but my head is not so convinced.
Technically, the Tory record is so bad I struggle to see how they have continued to be voted in and may be voted in again.
This data always perplexes me!
“The owner occupiers’ housing costs (OOH) component of CPIH rose by 5.3% in the 12 months to November 2023, down slightly from 5.4% in October. OOH costs rose by 0.4% on the month in November 2023, compared with a 0.4% increase in the same month a year ago.” Source: ONS website 20/12/23.
Sorry no time this morning
It’s a rounding issue. If MoM is the same as November last year then the YoY would be unchanged. The fact YoY declined from 5.4% to 5.3% suggests that the MoM might have been 0.37% v 0.43% in November last year…… or something along those lines.
CPIH uses an approach called rental equivalence to measure OOH. Rental equivalence uses the rent paid for an equivalent house in the private sector as a proxy for the costs faced by an owner occupier. In other words this answers the question “how much would I have to pay in rent to live in a home like mine?” for an owner occupier.
It’s another way of saying that rental costs have been advancing at just over 5% a year. There’s a lack of supply caused by the anti-growth coalition in charge of taxation, planning and regulations.
This keeps house prices rising, very good for the house builders. I believe that there is collusion between the large house builders to push up house prices by limiting the numbers built. Large, high spec houses are the most profitable especially in the green belt
If it’s the nature of the indices that’s perplexing, this (link) may help explain the OOH aspects. I suppose the justification for using rents and therefore a ‘rental equivalent’ for owners is to avoid odd fluctuations due to house price surges and slumps and interest rate drops or jumps (themselves linked to the BoE rate-setting!); whereas rents are less volatile?
https://www.incomesdataresearch.co.uk/resources/insights/which-inflation-measure-cpi-cpih-or-rpi
Central bank independence another “bright” idea from parties like the Labour Party (Gordon Brown) now existing to support the rich and able to do so because an ignorant electorate don’t understand the implications of FPTP enabling the Peter Mandeleson’s of this world to say voters have no serious alternative to vote for other than the Labour Party!
One of the key ideas of MMT is that government has a central role to play in regulating an economy so why water this down?
That core inflation number of 5.1 came down less swiftly and remains stubbornly high.
The BoE committee will feel that they are right to have held rates. It’s not their job to engineer a recession – the anti-growth coalition were doing a perfectly fine job of it already when interest rates were much lower.
Ok guess you know very little of economics
The only way interest rates can reduce inflation is by creating recession
Ray,
If you had seen my comment from a day or two ago you would have seen that there is a lag in the effect of interest rises of the order of 18 months. Even if inflation is only falling slowly, sure as eggs is eggs it will soon reach 2% and then overshoot. So even if you, or the BoE, think interest rates are currently too high it is still crazy to keep them there.
And of course interest rates don’t affect the price of oil or world wide food prices. If you wanted to address those you’d lower purchases taxes such as VAT or fuel excise duty which do affect consumer prices with little lag.
As Richard has repeatedly said interest rates only control inflation by causing recession. Furthermore high rates themselves push up inflation through their effect on house prices.
The current high interest rates are nuts.
Thanks
Getting the balance right between “letting the professionals get on with it” and “political control” is difficult.
I suspect that health and education professionals yearn for “independence” from their respective Secretaries of State. But, ultimately it IS a price we have to pay for democratic control – it is just our duty to elect politicians that will exercise that control wisely.
That wisdom should involve “letting the professionals get on with it” most of the time…. so I would not make day to day interest rate setting part of the Chancellors remit and I would retain the MPC.
However, the MPC should have a members from a wide range of backgrounds – in particular, trade unions but others, too. It should also have a HM Treasury presence because monetary and fiscal policy MUST be coordinated. It should also have a balanced remit that does not emphasise inflation control above all else.
Then we might have a sporting chance of getting a sensible policy.
That would be a direction of travel
HMRC needs the same thing
It isn’t just a matter of professionalism, unfortunately. Politicians aren’t trusted, but it isn’t because they are amateurs; that would be a non-sequitur. They aren’t trusted because de facto, too many politicians have fouled the nest of Parliament, and the public have drawn the fatal conclusion.
It is, therefore a matter of trust. Professionals are mere fallible human beings; and unfortunately, a significant number of people in any given community cannot be trusted. This is a function of human nature, and of course, culture. Our culture, it seems to me too readily indulges the untrustworthy, if they are prepared to take risks (as if it was a form of gallantry, but it may be merely sociopathic; or worse). The real problem is that the public trust in the Professions is taken for granted, and simply leads to complacency. Complacency in Britain is rife; even in a cost of living crisis; indeed I would offer complacency as a symptom of the scale of the problem: I count the helpless hand-wringing in British public life and political discourse, as a substitute for action or substantive solutions – beyond the preposterous, ‘we are all in this together’ when clearly we are not – as a simple example of the wretched species.
The professional knowledge of the professional I may well take for granted (and may be disappointed, by exception); but trust is quite another matter. The proposition that professionals are more trustworthy than others because they are professionals is a reputation the Professions crave (for good reason), and has certainly acquired an uncomfortably high degree of public assent; but the proposition is contingent, and does not hold.
Complacency… until something is wrong or needed, by ME:
My body is sick – get me a doctor/dentist/hospital, now; and sort it.
My energy bill is unaffordable – subsidise it.
My firm is going bust and will lose a thousand jobs vital to the area – bail it out.
And forthcoming… the planetary system is breaking down (and it’s too hot, food supply chains aren’t working…) – fix it now!
This morning’s Reith lecture mentioned the problem of getting political agreement on costs to be paid now for benefits to receive in the future, especially when the delay is as long as a generation. We need a “Ministry of the Future”, whose main role would be education and participatory decision-making
“Bankers aren’t trusted because de facto, too many bankers have fouled the nest of of the economy, and the public have drawn the fatal conclusion especially after the GFC of 2007/2008.”
Accountability is therefore the primary ingredient in the well-being of a nation difficult though it is to implement.
Especially when politicians can’t or won’t see beyond the next election.
Why does core CPI exclude food, energy, alcohol and tobacco?
Surely the reason many households are in trouble is because the core of their spending, energy and food, rose by so much in the past few years.
It includes them
Core inflation measures only such issues
So what does this mean?
Core CPI (excluding energy, food, alcohol and tobacco) rose by 5.1% in the 12 months to November 2023, down from 5.7% in October;
It means CPI includes those items and Core CPI does not
“why it was that we let unelected people impose mayhem on the country”
Shades of the argument on Brexit ( “unelected bureaucrats” – show me one that is).
It begs the question that if there is political oversight/control on important national matters such as transport and energy, what makes money/finance different?
Having seen the HoC debate on money – Baker seemed to, mostly, know his stuff, suggesting that some politicians certainly know enough to exert control over the money men. That they do not suggests a combo of cowardice, political calculation (bit risky), laziness (too difficult) or……..what? (belief system that money is best left to “experts” – yup that’s working out well).
It is a puzzle. Perhaps they (politicians) are intimidated by the money men?
Remember all who took part in that debate from all sides were awkward backbenchers – which might be why they took part.
I am sure you are right. But the overall debate suggested unhappiness with the situation (and it is no different today).
I liked Baker drawing the distinction between money and capital.
Baker’s goal was to remove the power to create money from the state
Yikes!
If the power to create money is removed from the government that is a very serious problem. Money must be created in a growing economy to avoid recession, depression and/or deflation.
Does Baker think, does anyone know, whether he wants banks to create money or wants it delegated to an “independent” BoE?
In both cases there is a severe lack of democratic accountability. The BoE’s track record on interest rates does not inspire confidence.
Banks can only temporarily “create” money. Any money they create is matched by a corresponding debt (double entry book keeping, of course, that you, Richard, keep emphasising). This means that it eventually has to be paid back. There is, I believe , some evidence to suggest that bank money creation is deflationary overall.
For the banks to increase the amount of money, they have to create ever increasing debt. For borrowers to afford ever increasing debt (especially mortgages) the interest rate must continually fall. I would suggest that is what has happened over the past few decades. This resulted in near zero rates until a year or two ago. This is a further reason to expect that rates will decrease again to very low levels.
But debt creation cannot continue indefinitely. The capital still has to be repaid even if interest rates are zero. And rates can’t go (very) negative (at least for retail borrowers).
So bank debt creation is ultimately limited and, I would suggest, we are near that limit.
If we wish to avoid economic disaster then we need money creation. The problems we currently have are, in no small part, because the government has refused, for unjustified ideological reasons, to create money.
I am late into this, because I have only now caught up with his speech. He seems to be on the right track. But this is Steve Baker. That Steve Baker; no, really that Steve Baker.You know, the one who voted for Liz Truss as PM; the one who wrote this: “It seems to me Liz Truss is the best placed candidate to work through these issues and the challenging times we face.” Liz Truss. The Steve Baker who said this to Peston on ITV: “I’m not going to apologise for voting for Liz Truss. I was Suella’s campaign manager and we agreed together that we would back Liz, as indeed the Eurosceptics did. And the reason we did that is because we all agreed we needed somebody who would see through on the Northern Ireland protocol and change the direction of this country”.
Unless there are two Steve Bakers. What is this Steve Baker doing in the Conservative Party; ever. This Conservative Party. The one he has done a great deal to deliver precisely where it is now. What have I missed? Where have I been, or where has he been these last thirteen years? I am officially lost.
All this is as clear as mud. Come out, wherever you are. I give up.
Following on from what Richard says above about Baker’s motives, here’s Michael Hudson on neoliberalism “And so neoliberalism, it’s an anti-social philosophy. That’s what the Austrians were. They said, we have a definition of markets that doesn’t have society at all. As you mentioned, Margaret Thatcher said, there’s no such thing as society. So you have a neoliberal view of society as well as markets without government, without anything that is subsidized, without any social feeling. It’s all individualism. As if you can make the whole society with individualism, there is no public infrastructure because any infrastructure is privatized. There is no public credit and money creation because all money creation, instead of being a public utility, it’s all privatized. And that lets the bankers create the money. The bankers receive the interest on loans of this money. The bankers lend to the landlord class to buy real estate and oil wells and mines and extract economic rent.” https://informationclearinghouse.blog/2023/12/21/is-neoliberalism-really-dead/
I suppose they get away with it because the BoE are ‘independent experts’ – just like Clara Mattei describes in her book ‘The Capital Order’.
Inflation may well still have a good bit to go, what with the wacky weather lowering the water levels in the Suez Canal and the Houthi taking pops at trader vessels plying the Red Sea including those on the way to you and me with our Chrissie prezzies aboard (I’m expecting a far infrared device from Shenzhen, my prezzie to me), well, external events look like leading to more scarcity maintaining inflation and the Bank will no doubt use this as an excuse for not lowering rates. It ain’t over till it’s over, and let’s not even get started on the adverse economic effects of the vicious form of Covid which seems to be making a global comeback.
That disruption lasts four weeks