As the Office for National Statistics has reported this morning:
- The Consumer Prices Index (CPI) rose by 2.2% in the 12 months to August 2024, unchanged from July.
- On a monthly basis, CPI rose by 0.3% in August 2024, the same rate as in August 2023.
- The largest upward contribution to the monthly change in both CPIH and CPI annual rates came from air fares, which rose this year but fell a year ago; the largest offsetting downward contributions came from motor fuels, and restaurants and hotels.
- Core CPI (excluding energy, food, alcohol and tobacco) rose by 3.6% in the 12 months to August 2024, up from 3.3% in July; the CPI goods annual rate fell from negative 0.6% to negative 0.9%, while the CPI services annual rate rose from 5.2% to 5.6%.
So, we can conclude that:
- Inflation is stable.
- The real core of inflation (energy, food, etc) is stable: it is on the periphery, like airfares, where there is inflation.
- The obsession with this issue is now unjustified.
Therefore, the Bank of England urgently needs to cut interest rates and heavily to:
- Prevent recession
- To meet Rachel Reeves' demand for growth
- To prevent the hardship and misery high rates are causing to those who borrow most in proportion to income - whether they be small employers or younger homeowners.
The required direction of travel - to base rates of three per cent or less - is now so obvious that the case hardly need be argued.
I do, however, very much doubt that the Bank of England, geared as it is to the interests of the cash-based saver who likes to deposit their funds in a bank, will see things that way. As a result, the misery will continue.
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How true is it that we follow the Fed in interest rates, to keep the pound worth investing in?
If so the markets would be influencing the BoE to make decisions that affect ordinary people, which doesn’t sound right.
We follow the same dogma
That means we follow the same interest rates
The dollar undoubtedly has an influence – but it is not for invetsment, it is to manage exchange rates – but the evidence is that central banks are very poor at doing so
You refer to the bank being geared to the interests of cash based savers, but is it more that the Bank is obsessed with using interest rates to control inflation, despite as you have said in the past, inflation is largely affected by other factors and rises and falls accordingly?
Is one a convenient excuse for the other?
Always ask, who gains?
Banks are right now
Do you think there would be a run on the pound if we cut interest rates and abandoned Labours fiscal rules?
No
I see Andrew Sentance is arguing the opposite in his latest tweet.
Only met him once but he seemed to be a bit out of the loop when he was in charge of environmental affairs at BA. He seemed surprised when I pointed out that BA were flying empty four engine jets between LHR and MAN three times a day just to preserve landing slots. What else wasn’t he aware of?
Never took him seriously after that.
I was asked to work with him once by Cambridge Econometrics
I quit rather than do so
Who is Paul Wallace?
I watched a video yesterday where he was being interviewed on the UK economy.
He doe not interview well.
No idea
I saw it being promoted (Novara Media?) but did not watch it.
YouTube – PoliticsJoe channel
Ah, that was it…
@BayTampaBay:
Paul Wallace – former economics editor of The Economist, now with The Independent; written a few books, of course, none of which I’ve read!
His latest, published in August: “Tanked” – about what’s wrong with Britain’s economy (including Brexit, I think?!)
“A rare book on economics that is actually written in English” – Simon Jenkins (hmm… an endorsement that doesn’t inspire me)
I imagine going on as many shows, podcasts etc as possible in order to pump the book.
You have to be careful in how you use the word “core” as “core inflation” has a separate meaning:
according to the ONS.
Food and energy are core to people’s lives but they are not included in “core inflation”.
I am careful
I am saying that they are talking total nonsense
Air fares are npt core, but they say the are
Food is, but they say it is not
Politely, that’s crass
It seems to me that fuel is THE key component because the price of everything is effected by the price of fuel.
I whole heartedly agree.
Again in my world of local authority affordable housing development, we went up from a 4.5% interest charge when borrowing from our own housing revenue account to 6% based on the behaviour of the BoE.
Now we are moaning about the cost of development but is our local choice to follow the BoE – although the Treasury might intervene and tell us to put up what should be a locally managed interest rate.
The thing worth noting is the slavish, unquestioning following of the BoE mantra. It is not even logical to me – it’s like watching people catch a cold or something. It’s like a virus.
Regrettably you are probably right Richard.
Ms Reeves is not likely to force her alma mater to lower the base rate.
You say…”The real core of inflation (energy, food, etc) is stable: it is on the periphery, like airfares, where there is inflation.
The obsession with this issue is now unjustified.
Therefore, the Bank of England urgently needs to cut interest rates and heavily”
You have managed to get the definition the wrong way around. Core inflation is without food and energy. Because we know that those can be affected – up and down – by near random changes in the marketplace. It’s the other stuff that is “core” because that’s the bit that’s showing us the inflation rate being caused by monetary conditions, not random market variations.
I know the definitions
I am saying they are wrong
‘Real core inflation’ was the phrase Richard used. Did you miss that?
“Real core inflation’ was the phrase Richard used. Did you miss that?”
Other than the echo chamber here no one takes any notice so what does it matter..
And I defined what I meant
The inability to comprehend is all yours
The reason food and energy is excluded from the CPI to establish “core inflation” is that the economists wish to exclude items subject to volatility. Do not confuse that priority with the pursuit of intellectual rigour; it is rather just making life easier for the forecaster. Mark Wynne, ‘Core Inflation: A Review of Some Conceptual Issues’; Federal Reserve of St.Louis Review, May/June, 2008, Part 2, pp.205-228; suggested in a forensic analysis of stock methods of measuring core inflation concludes that: “[t]here is simply no agreed upon theory of money that can serve as a basis for inflation measurement that could plausibly replace the theory of the cost of living”. As always the problem is data and outcomes, not the abstract maths. He goes on to argue that: “First and foremost, before choosing a measure of core inflation we need to specify what it is we want the measure for. Do we want a measure of core inflation to answer the question ‘What would the inflation rate have been if oil prices (or indi- rect taxes) had not increased last month?’ If so, then none of the approaches reviewed above will help ……. Furthermore, if the measure of inflation we are interested in is the cost of living, then it is not clear why we would ever want to exclude the effects of oil price increases or indirect taxes. Thus it must be the case that when measuring core inflation we have some other inflation concept in mind”(p.223) .
Core inflation serves the convenience of the forecaster, and as economists have inadequate observational and experimental scientific tools to measure real data; volatility in the real world is beyond their paygrade; so it is simply by passed for something more easily measured.
Thanks
And for those saying the BoE is independent:
They can quite easily cut interest rates significantly and piss off the incumbant government. This would prove the point that they are beholden to nobody but their board of 7…
Aside from their effect on homeowners, high interest rates seem to be squeezing the life out of businesses large and small, who, I believe, are being forced to put up prices in an attempt to survive. You have convinced me that the BoE approach is nonsense, but is an economic collapse on the horizon or will we just sink slowly into recession?
Steady decline into recession is happening now, I suggest
The US Federal Reserve just interest rates by a half-point per MSNBC.
If that happens here I will be staggered.
Even 0.25 would be staggering.
Should be:
The US Federal Reserve just CUT interest rates by a half-point per MSNBC.
Sorry for the typo.
Now the Fed has cut half a percent – BoE may do another quarter percent cut – even though ‘city analysts’ were betting on no cut this month
I am not expecting a cut tomorrow
Correct as usual Richard . 5%