Tag Archives: inflation

Does “Assume” Make an Ass out of U and Me?

Once upon a time our assumptions about interest rates were that they were always in plural digits. Now we accept near zero interest rates and some accept negative interest rates as normal as they have been around for about a decade.

What would happen if currently “normal” mortgage rates returned to their higher previous “normal” rates? What would happen to car sales and the like if we returned to the “old normal” interest rates? How can people and institutions save when interest rates are nominal and interest fruitful amounts of money are so vulnerable?

With near zero interest rates, is the stock market the only actual vehicle for investment income? Is it reliable for the many?

Another previous normal assumption was that massive money creation would result in inflation/excessive inflation. It hasn’t. (Assuming relevant data is accurate). Can we now assume that the massive use of money trees does not, in practice, affect inflation significantly?

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Inflation sign of Brexit squeeze – Lib Dems

Inflation has gone up to 2.7% today.

This confirms long-held Liberal Democrat warnings about the impact of Brexit, with businesses struggling to contain rising costs and consumer demand being squeezed.

Susan Kramer said:

These worrying levels of inflation show the Brexit squeeze is hitting shopping baskets across the country.

This is the reality of Theresa May and Nigel Farage’s extreme Brexit agenda: higher prices in the shops, the cost of holidays going up and less money for our schools and NHS.

A brighter future is possible. We will give people a choice over their future through a referendum, so they can reject a bad Brexit deal and choose to remain in Europe.

Willie Rennie underlined this point:

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Susan Kramer: Brexit squeeze is hitting families with higher food prices

Liberal Democrat Shadow Chancellor, Susan Kramer, has reacted to news from the Office for National Statistics that food prices saw the biggest increase for three years in the year to March:

The Brexit squeeze of a falling pound and rising import costs is hitting families across Britain, with higher prices in the shops denting incomes and leaving us all poorer.

This is deeply worrying news for our economy, which has been propped up by consumer spending.

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Lib Dems: Inflation rise hits the poorest

Senior Liberal Democrats have been commenting on the inflation rise today. I have to say that although  0.5% in a month is a lot, it feels like so much more. The prices of so much of my supermarket shop seems to have gone up by a lot more.

In Scorland, our Economy spokesperson Carolyn Caddick said:

Rising inflation shows that the British public are paying the price for Theresa May’s decision to take Britain out of the Single Market. With the pound falling in value by 18% since the referendum, the price of imports have shot up and broken the official target. Every Scot going on holiday abroad is seeing that their pounds do not buy what they used to.

Worst of all, the dramatic leap in food prices is hitting the poorest the most.

The fragile UK economy has been kept on life support by consumer spending, but with prices rising, that is now threatened. If Theresa May should change course immediately, and recognise that you can’t have a hard Brexit and affordable prices.

Our Shadow Chancellor Susan Kramer also blamed Brexit, saying that “You can’t have a hard brexit and affordable prices.”

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Susan Kramer says that Government must unfreeze benefits

Back in July, I told a panel on social security at the Social Liberal Forum conference that in the wake of Brexit, a benefits freeze for four years, which was never a good idea, was entirely inappropriate and we should be opposing it loudly.

Analysis from the Institute of Fiscal Studies confirms that Brexit is going to hit those on benefits and low incomes particularly hard:

Normally many of those on the lowest incomes would be at least partially protected from the impact of higher prices by the rules that govern the annual uprating of benefits and tax credits. By default, benefit and tax credit rates are (with some exceptions, most notably the state pension) increased each April in line with the annual CPI inflation rate of the previous September – higher prices lead to higher benefit rates (albeit with a lag). However, in the July 2015 Budget the Government announced that, as part of its attempt to cut annual social security spending by £12 billion, most working-age benefit and tax credit rates would be frozen in cash terms until March 2020. This policy represented a significant takeaway from a large number of working age households. But it also represented a shifting of risk from the Government to benefit recipients. Previously, higher inflation was a risk to the public finances, increasing cash spending on benefits. Now the risk is borne by low-income households: unless policy changes higher inflation will reduce their real incomes.

I am glad to see that our shadow Chancellor, Susan Kramer, has now said that the Government must reverse its unfair benefits freeze plans:

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Danny Alexander: More people in work than ever before, earnings now rising in line with prices

speech danny alexander 6Two pieces of good economic news today, as the BBC reports:

UK unemployment falls to five-year low of 2.2m

The number of people out of work in the UK has fallen by 77,000 to a five-year low of 2.24m in the three months to February, official figures indicate. The unemployment rate now stands at 6.9% of the adult working population, the Office for National Statistics (ONS) said.

After six years, wages finally overtake inflation

After nearly six years of falling real wages, weekly earnings have finally edged above inflation. Weekly wages, including bonuses, rose by 1.7% in the year to February, up from 1.4% in January, according to the Office for National Statistics (ONS). Earlier this week, inflation, as measured by the Consumer Prices Index (CPI), fell to 1.6%. It is the first time that earnings have been higher than inflation for six years, apart from two months in 2010.

Here’s what the Lib Dem Chief Secretary to the Treasury Danny Alexander had to say:

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Opinion: Inflation the biggest threat to economic growth

Economic commentators and politicians searching for that most elusive of phenomena – economic growth appear to be operating a back to basics approach. The Bank of England takes the traditional neo-classical approach to its role as arbiter of monetary policy – Quantitative Easing and liquidity schemes to expand the money supply and make borrowing cheaper to incentivise businesses to expand. The government are taking a much more Keynesian route to growth, announcing house building schemes and other infrastructure initiatives in order that the state injects the demand into the economy …

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Opinion: Getting radical with the money supply

Last week the OECD forecast that Britain was about to experience a double-dip recession, for the first time since 1975. Vince Cable in his Centreforum paper Moving from the financial crisis to sustainable growth asks “How far should monetary policy now be expanded further in the UK to boost demand and head off a period of poor growth?

He goes on to say “There is no possibility for further meaningful interest rate cuts – real short term rates are now minus 4 percent. That means further recourse to quantitative easing.

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Three cheers for inflation?

Economist and economic historian Nicholas Crafts is back in the public eye with a new pamphlet for CentreForum. Those with long memories of his previous controversial stances won’t be surprised to know this pamphlet does not take a mainstream approach to economic history or economic policy, instead praising part of the 1930s and calling for more inflation.

The two are linked because he splits Britain’s economic record in the 1930s in two, arguing that in the second half of the 1930s higher prices helped fuel a strong economic recovery:

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PMQs: You can’t gesticulate your way out of a Balls-up

He still looks like a clever sixth former to me, but it is fair to say that Ed Miliband has cracked Prime Minister’s Questions. His performance this week was excellent.

“Just a bit late” was David Cameron’s description of Miliband’s raising of the Fox affair. It is easy to understand why Miliband did not raise the subject last week. Labour played a canny game with Dr Fox. They did not call for his resignation and at the last PMQs, Miliband did not ask directly about the issue. This allowed Dr Fox to swing in the media wind, without obvious Labour encouragement. …

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Opinion: Latest consumer data shows new ‘growth strategy’ is not needed

The advent of 24 hour news channels has led to the media creating a fresh conventional wisdom with every new day.

They started by highlighting the dangers of a double dip recession because the government would cut too fast and too deep. Now, that’s something which Ed Milliband doesn’t even believe if you give credence to his recent appearance on the Andrew Marr Programme.

When the media were airing the cuts too fast argument, I indicated that the danger facing the economy over the medium term would come from inflation.

When the media turned its fire on the danger of inflation, and …

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[email protected]: Tim Leunig – Co-ordinated inflation could bail us all out

Over at the Financial Times, Tim Leunig – occasional contributor to LDV, and reader in economics at the London School of Economics – considers the unusual financial origins of the current recession. Here’s an excerpt:

The global economy would benefit from a pre-announced, temporary, globally co-ordinated bout of moderate inflation. Since it takes about two years for central-bank policy fully to influence inflation, a sensible policy would be to target 4 per cent inflation for the five years from 2011, followed by 2 per cent thereafter. … An increase in inflation by an extra 2 percentage points for a period

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Recent Comments

  • User AvatarCass Macdonald 21st Oct - 7:58am
    Alas, I could not be there due to pain and other issues, but I spotted the ITV live feed over Marble Arch before the march...
  • User AvatarTom Harney 21st Oct - 7:50am
    The human rights abuses in Saudi Arabia have been well publicised for a long time. This country exports a lot of arms to Saudi Arabia....
  • User AvatarVenetia Caine 21st Oct - 4:56am
    Three of us from Somerset, LibDems all, travelled independently, and I know there were more with other groups. So many there, we couldn't get nearer...
  • User AvatarCaron Lindsay 21st Oct - 12:03am
    @Rhiannon - it was clear that you were born to lead chants, as well as organise Exit from Brexit campaigns:-).
  • User AvatarJames Marrs 20th Oct - 11:36pm
    Well im all for a peoples vote yet please dont forget the most effected like myself living in the EU many were DENIED a vote...
  • User AvatarJill Caudle 20th Oct - 11:31pm
    There were lots of Lib Dems elsewhere in the march too e.g. at least three members in our group from Salisbury for Europe (which covered...