Property Prices down in August!!

Oh no this will cause a nice long thread for the doomsters, (possibly me) and optimists!!! Tongue in cheek Tumbleweed!!

Alan :)

Whatever it is you're smoking perhaps you could pass it round?

And when the effects have worn off you should read this.

Inflation may run out of control - King Bank of England Governor warns that householders may overreact to economic shocks By Julia Kollewe Published: 29 August 2005 The Governor of the Bank of England has warned that inflation could spiral out of control if economic shocks such as an oil price spike jolted consumers' faith in stable prices.

Addressing other central bankers, Mervyn King said monetary policy in the UK and US was vulnerable precisely because of its own recent success.

He argued that because consumers are so used to price stability, the risk is that they would overreact if the economy was hit by a big shock. Mr King has warned in the past that an oil price spike or an asset bubble could amount to such a shock.

"Inflation expectations may be sensitive to a large but temporary shock that moved inflation outside the range within which it has remained for some years," Mr King said.

"With their belief in stability jolted, households' inflation expectations might move by much more than was justified by the temporary nature of the shock. That would make it more difficult for the central bank to bring inflation back to target."

Britain's annual inflation rate rose above the Bank's 2 per cent target in July

- to 2.3 per cent - for the first time since the consumer price index measure was adopted in December 2003, due in part to soaring oil prices. It is set to rise further in coming months as oil prices are surging to new record highs. Worryingly for the Bank, prices for other goods have also increased.

The Bank cut interest rates this month for the first time in two years, but the decision was opposed by four of the panel's nine members, including Mr King, who thought that it was too early to conclude that inflationary pressures had abated.

The current low-digit rates of inflation are a far cry from the mid 1970s when price growth hit a record 27 per cent in Britain, but Mr King warned his fellow central bankers not to become complacent. He said: "The moral of this particular story is that it may be risky to infer from the observation that inflation expectations are stable that all is well." Mr King's comments came at the annual central bank symposium sponsored by the Kansas City Federal Reserve in Jackson Hole, Wyoming. Bankers paid tribute to Alan Greenspan, the chairman of the US Federal Reserve, who is stepping down in January after 18 years in the job.

Mr King said he had learnt three lessons from Mr Greenspan: that economics is a way of thinking, not just a set of doctrines; the importance of relying on a wide range of qualitative and quantitative data from numerous sources in assessing the health of the economy; and that central banks should maintain a consistent and predictable policy so that shifts do not affect the financial plans of businesses and consumers.

Delivering the concluding remarks at the Jackson Hole gathering on Saturday, Mr Greenspan cautioned the US government not to expect his successor at the Fed to bail it out by printing money. In fact, he warned that monetary policy may have to be tightened because of growing federal spending obligations. The federal budget deficit rose to a record $412bn (£229bn) last year.

Mr Greenspan said: "The Fed would resist any temptation to monetise future fiscal deficits. We had too much experience with the dangers of inflation in the

1970s to tolerate going through another bout of dispiriting stagflation."

And he added that monetary policy "cannot ignore the potential inflationary pressures inherent in our current fiscal outlook, especially those that could arise in meeting commitments to future retirees".

I'd say "FFS I'm not an optimist " but that might falsely give you the impression I have a strong opinion that prices are not heading down :-)

I dont know. I am just amused/annoyed by those who pretend to know. Because no one does. Except God, and She doesnt exist.

Mervyn King obviously doesn't read the Economist which concludes that because western economies now produce more GDP per barrel of oil than during the last oil shock we no longer need to worry too much about the price of oil.

The Economist then goes on to point out that economies like India and China are now less efficient in terms of GDP/Oil Consumption but doesnt' seem to make the connection that this can lead to inflation through imports.

Personally I think Mr King is correct. Inflation is not dead, it has merely been sleeping.

Particularly as ever reducing prices of goods have masked significant increases in services inflation. Will be interesting (times) to see how the Chinese textile quotas are resolved.

Why?

In message , Jon writes

Because my loans will cost me less!

In message , curiosity writes

I dont pretend to understand all this economic mumbo jumbo but surely, if inflation is caused by an outside influence, like oil prices, raising interest rates will not serve to curb it.

AFAIK rising prices would tend to a reduction in consumer spending and business investment, therefore interest rate rises would not be necessary to slow these. In fact, interest rate reductions would be more sensible in order to encourage spending, and to take some of the heat out of the inflationary pressure

????

"Richard Faulkner" wrote

I believe the theory goes like this. If you had income of 100 a month and an interest rate bill on your interest-only mortgage of 35 a month at 5% base rates, you could afford to spend up to 65 a month on petrol (assuming that were the only other call on your 100).

If interest rates went up to 6%, your interest rate bill would go up to 42 a month and thus you'd now have only 58 left to spend on petrol. So you'd lower your bid for petrol to that amount, or reduce your consumption of it, until it falls to that level. Either way, reducing what you can afford to pay for it should force its price to fall.

Demand for some things, like food and winter fuel, is pretty inelastic, meaning you'll pay the price no matter what the cost. I suspect petrol is another of those things, but it's not right-on to say so.

.... that must be some fine weed you've got hold of there!

Well, quite.

In message , curiosity writes

Why dont you tell me why I'm wrong, rather than blaming weed?

in the context of money supply and easing of credit check out 'demand pull'. Higherb oil prices would tend to exacerbate 'cost push' and the 2 together would be bad, bad medicine.

My god, the capitalists have even got you too!

Except most banks aren't passing on the cuts, they certainly haven't following the August cut, they have to maintain their margins in the face of rising defaults.

Significant rate reductions would reinflate the housing market, which would end in tears, and higher rates in the longterm.

Anyway, indeed, there is a theory that because it's a supply side issue oil in itself acts as a tax and therefore is acting like higher interest rates with a deflationary impact, however that ignores the fact that the reason supply cannot keep up is because of higher demand (well duh! indeed), if you raise rates you may dampen demand, except that excess demand probably isn't originating in the UK.

I wouldn't fancy being on the MPC right now, they were made 'independent' for exactly these reasons, to take the blame. Expect Brown et al to make speeches on the "slowdown in the global economy", "wider economic pressures" and "slow growth within Europe" etc.

Mine has, from 6.19% to 5.99%.

Woohoo, you got 80% of the cut ;)

To even out the score, I think one of my savings accounts gave me

120% of the cut. :(

Bitstring , from the wonderful person Aztech said

Whereas most savers got 140% of the cut ....