Will sterling take a beating this week ?

Tell abelard, he seems to think it is.

On Wed, 29 Mar 2006 05:34:39 GMT, snipped-for-privacy@ntlworld.nospamta.com mysteriously appeared thru the usenet mist to inform us thus...

I believe you but Mel was referring to foreign investors in US assets.

Eg: if I buy a $1million of US bonds and sell them one year later, how is my investment affected by US domestic inflation? I started with sterling and ended with sterling and none of the money is spent on goods/services within the US.

On Wed, 29 Mar 2006 05:34:39 GMT, snipped-for-privacy@ntlworld.nospamta.com mysteriously appeared thru the usenet mist to inform us thus...

Can you explain this?

I'd be very surprised if that were so

The exchange rate with sterling will fall during the year if the US (actually the dollar) is experiencing inflation

Sure. CPI is a basket of consumables. It excludes many important items that directly affect the cost of living. IIRC, 'Positional' goods (of which housing is by far the most important example) are the principal omission, but so are most services

Actually, CPI is a harmonized European confection, and is even worse than the old RPI as a measure of the actual cost of living

On Wed, 29 Mar 2006 10:06:58 GMT, snipped-for-privacy@ntlworld.nospamta.com mysteriously appeared thru the usenet mist to inform us thus...

Possibly but not necessarily. US interest rates could have been raised during the period to prop up the dollar or there could be a global event which caused a flight to the dollar ... or ...

But I'm pleased you highlighted that because when I read Mel's comments I thought there was something I'd missed.

On Wed, 29 Mar 2006 10:09:18 GMT, snipped-for-privacy@ntlworld.nospamta.com mysteriously appeared thru the usenet mist to inform us thus...

It's ok, I thought that's what you meant.

The counter argument is that some of that monetary inflation may be placed on deposit, or exported to cause foreign inflation; so I don't think one can say that all monetary inflation finds its way through to CPI (or even the old RPI), sooner or later. This may explain why there is no overall consensus among economists about the measure abelard uses - ie M4-GDP=inflation.

On Wed, 29 Mar 2006 09:27:04 GMT, snipped-for-privacy@ntlworld.nospamta.com mysteriously appeared thru the usenet mist to inform us thus...

In his often cryptic way, he does. He refers to inflation in the UK as being (eg) 10% but fails to mention that he means monetary inflation which is not the same thing. Given that most people think of inflation as the CPI, it's misleading.

Indeed. All other things being equal and all that...

Hmm, I see where you're coming from, but is it really misleading to use a term correctly (inflation is not the CPI after all) when common parlance uses the term incorrectly?

In idle moments, I've often remarked on the fact that a 'quantum leap' in common parlance means 'a large leap' whereas in fact it ought to mean 'a small leap', or at best, 'a discrete leap'

All of which is fine. There's a good article about the use of M4 in the Economist this week (as the US has just stopped collecting the data). The thrust of the article is that over the medium term, M4 does roughly predict inflation, and that having it on the radar screen is still useful

On Wed, 29 Mar 2006 11:23:42 GMT, snipped-for-privacy@ntlworld.nospamta.com mysteriously appeared thru the usenet mist to inform us thus...

Isn't it M3 data the fed has just stopped publishing?

Agreed.

On Wed, 29 Mar 2006 11:19:42 GMT, snipped-for-privacy@ntlworld.nospamta.com mysteriously appeared thru the usenet mist to inform us thus...

The only thing wrong with CPI is that it's inaccurate ;-) But it is nevertheless intended to be the UK guide to consumer inflation. If I were talking about monetary inflation, I'd probably wish to state so, to avoid misleading people.

Sometimes!

Could be... I'd have to check

If the discussion got technical, I agree. I think it's more misleading to use CPI (not even RPI) as a measure of 'inflation'. I believe most people don't think of CPI as inflation, but rather have a less precise notion of 'rise in cost of living'. As a quantification of this, M4-GDP is probably better than CPI, which consistently understates inflation

:)

On Wed, 29 Mar 2006 14:04:45 GMT, snipped-for-privacy@ntlworld.nospamta.com mysteriously appeared thru the usenet mist to inform us thus...

well its now 1.7364 and close enough to to end of the day to use as the finishing rate. Over the week, its been a tadge higher, and a tadge lower, and its just about average for Feb, where its moved between pretty tight limits of about 1.725 and 1.755. I dont think a drop of 0.007% counts as a 'sell off'* or if it does, I'll use that to indicate what you mean by a 'crash' in future postings. It also shows us the level of competence of whoever wrote that for the Times, eg none whatsoever.