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Probably stupid question of the year but....

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Polarbear
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PostPosted: 14:03 - 30 Dec 2021    Post subject: Probably stupid question of the year but.... Reply with quote

Why do we have inflation?

If everybody kept prices the same then wages would remain the same and we wouldn't need strikes or whining wallies going on about only getting a one percent pay rise.

I appreciate it would have to be a world wide agreement but surely it would benefit more counties than it would penalise. I have read googles version but I still don't get how infglation fuels growth.

My financial acumen is of course based on whether I have enough in the bank to keep a roof over my head, fuel my vehicles and cover my rum habit.

Feel free to point and laugh.
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Moth
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PostPosted: 14:48 - 30 Dec 2021    Post subject: Re: Probably stupid question of the year but.... Reply with quote

Polarbear wrote:
Why do we have inflation?


Supply & demand. And interest rates.
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Polarbear
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PostPosted: 15:02 - 30 Dec 2021    Post subject: Re: Probably stupid question of the year but.... Reply with quote

Moth wrote:
Polarbear wrote:
Why do we have inflation?


Supply & demand. And interest rates.


Nope, still doesn't work. If we had a fixed interest rate of say 5%, that would be it. no changes, no worries about your mortgage shooting up. Knowing that your savings were making money. If people all want arse picking sticks at the same time, some are going to be dissapointed. No different to the fact some won't be able to afford them if the price goes up.

Next.
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Nobby the Bastard
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PostPosted: 15:05 - 30 Dec 2021    Post subject: Reply with quote

Yep. Demand being higher than supply is one cause. People are willing to pay more, causing inflation. This could be caused by increases in costs to produce raw materials but there is also things like the opec cartel that deliberately limits oil production to increase its price.

This has the knock on effect of wages rising so that people can afford stuff.

Interest rates have the opposite effect. Higher interest rates puts people off borrowing to buy thing and encourages saving instead. Thats how governments influence inflation.
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Bhud
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PostPosted: 15:29 - 30 Dec 2021    Post subject: Reply with quote

Just to answer how it helps the economy:

https://www.investopedia.com/terms/v/velocity.asp
https://en.wikipedia.org/wiki/Velocity_of_money

i.e. you give a beggar £5 and it has an immediate velocity of 1, as he spends it, then Tesco and the off-licence use it to pay suppliers, rent and staff, and so on, etc. So the £5 ends up doing £30-ish worth of work within a matter of weeks, rather than stagnating in the system. All these businesses stay in business and keep borrowing money and repaying loans and paying taxes. It doesn't immediately go back into the banking system that issued it.

It's bad for household wealth and bad for savers, but good for the economy (because you get economic activity) and a way to make govt debt somewhat payable without doing deeply unpopular things like raising taxes or imposing strict austerity measures.

Of course, give £5 to a normal person and they'll stick it in their wallet and forget it's even there. Or add £5 to their bank account and it immediately gets put in the savings vehicle, whether that's a current account, an ISA or whatever. Dead money. Good for that individual but bad for the economy.

Inflation is calculated in a strictly defined and specific way, to exclude the prices of assets, in its calculation (which uses consumer prices and monetary supply).

If we were to include asset prices, then we are in a different ballpark.
I mean, look at Tesla PE ratio: 352.26
That's utterly bonkers, and (arguably) reflects money running into assets (such as tech stocks) for no other reason than to preserve its own purchasing power in the face of some pretty scary things going on in relation to inflation.
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Fat Angry Scotsman
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PostPosted: 16:10 - 30 Dec 2021    Post subject: Re: Probably stupid question of the year but.... Reply with quote

Polarbear wrote:
Why do we have inflation?

If everybody kept prices the same then wages would remain the same and we wouldn't need strikes or whining wallies going on about only getting a one percent pay rise.

I appreciate it would have to be a world wide agreement but surely it would benefit more counties than it would penalise. I have read googles version but I still don't get how infglation fuels growth.

My financial acumen is of course based on whether I have enough in the bank to keep a roof over my head, fuel my vehicles and cover my rum habit.

Feel free to point and laugh.


Inflation is the increase in the price level of goods and services over time, normally monitored using the consumer price index (CPI). The CPI is essentially a collection of goods that indicates the consumption habits of urban individuals.

If the goods become more scarce, for example supply chain issues (shipping container shortages, high shipping costs, factories shutting down due to COVID, HGV drivers leaving the UK due to Brexit, etc), then there are less goods to go around in the consumer pool.

As such that means there are people who really want the goods and will accept higher prices to obtain the goods over people who could not accept the higher prices. This is push inflation.

Then you have things like a shortage of labour (due to the benefits of NOT working being almost equal to the benefits of actually working - benefits, furlough schemes, housing benefit, etc) the cost of labour increases as employers increase salaries, etc to get people to work for them. This then means more people have more financial ability to pay the higher prices or purchase goods that were unavailable to them before. In this case even if the level of goods and supply was the same as before, the price still increases as more people are now in the position to pay it. This is pull inflation.

Inflation at a low level (and above the level of bank interest rates) is a good thing as it encourages people to not horde their money and instead spend it - whether it is on goods or investments: it doesn't matter. If inflation was 5.0% annually then your money held in you bank account is worth 5.0% less than it was in the previous year.

This then ties into the post by Bhud on the velocity of money.

Normally inflation is controlled by printing more money, which has the effect of both devaluing the currency but also giving people more money and contributing to pull inflation further down the line. There is no way to stop inflation. None.
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Nobby the Bastard
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PostPosted: 16:44 - 30 Dec 2021    Post subject: Reply with quote

Quantitive easing (printing more money) only really became a thing during the sub-prime crash simply because it's been tried in the past and anything more than careful and limited and short term usage tends to be followed by hyper-inflation so is largely frowned upon.

Most financial institutions were very uneasy about it being introduced then and it was all over the news that it was going to be tried by the large economies simply to try and save the banks.

The usual method for managing inflation is, as I said, interest rates. Back in the 90's interest rates hit about 15% to control inflation.
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Moth
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PostPosted: 17:25 - 30 Dec 2021    Post subject: Re: Probably stupid question of the year but.... Reply with quote

Polarbear wrote:


Nope, still doesn't work. If we had a fixed interest rate of say 5%, that would be it. no changes, no worries about your mortgage shooting up.

Next.


Are you a socialist?

Inflation & deflation isn't something that was designed into the system, it wasn't 'created' to serve a purpose. It exists because it is a reaction to market conditions.

If you think having a universally fixed interest rates for borrowing/saving would ever work then you must be very financially naive.
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Islander
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PostPosted: 17:50 - 30 Dec 2021    Post subject: Reply with quote

Capitalism and the worship of money. Wink
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Moth
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PostPosted: 18:04 - 30 Dec 2021    Post subject: Reply with quote

Islander wrote:
Capitalism and the worship of money. Wink


Marxism and the genocide of the people. Wink
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Polarbear
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PostPosted: 18:51 - 30 Dec 2021    Post subject: Re: Probably stupid question of the year but.... Reply with quote

Moth wrote:
Polarbear wrote:


Nope, still doesn't work. If we had a fixed interest rate of say 5%, that would be it. no changes, no worries about your mortgage shooting up.

Next.


Are you a socialist?

Inflation & deflation isn't something that was designed into the system, it wasn't 'created' to serve a purpose. It exists because it is a reaction to market conditions.

If you think having a universally fixed interest rates for borrowing/saving would ever work then you must be very financially naive.


Me, a socialist, no not me. I had a picture of Eva Peron on my wall when all the other kids had Raquel Welch in 1000000 years BC. Razz

Why am I naive? Banks would still make money loaning at a higher interest rate than they give savers, but savers would still make money because inflation would be zero.

Your statement I have highlighted is wrong. Deflation is not allowed. Governments manipulate the system to ensure there is no deflation. If market conditions support it they are manipulated immediatly to stop it. Inflation is designed in the system. The bank of England are meant to control inflation at 2 percent. Why? Why not 0%.
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Nobby the Bastard
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PostPosted: 19:37 - 30 Dec 2021    Post subject: Reply with quote

Hmm.

Arguably there was deflation in some areas during the first lockdown.
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Polarbear
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PostPosted: 19:57 - 30 Dec 2021    Post subject: Reply with quote

Nobby the Bastard wrote:
Hmm.

Arguably there was deflation in some areas during the first lockdown.


Agreed but it was an utter fuck up due to covid when half the country shut down, and soon corrrected.
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Wull
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PostPosted: 21:33 - 30 Dec 2021    Post subject: Re: Probably stupid question of the year but.... Reply with quote

Moth wrote:
Polarbear wrote:


Nope, still doesn't work. If we had a fixed interest rate of say 5%, that would be it. no changes, no worries about your mortgage shooting up.

Next.


Are you a socialist?

Inflation & deflation isn't something that was designed into the system, it wasn't 'created' to serve a purpose. It exists because it is a reaction to market conditions.

If you think having a universally fixed interest rates for borrowing/saving would ever work then you must be very financially naive.


I hate comments like this, why are you making it personal and attacking him? He didn’t ask for your opinion of him, so don’t, answer the question or move on.
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stinkwheel
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PostPosted: 21:41 - 30 Dec 2021    Post subject: Reply with quote

Property prices have a lot to answer for.
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Nobby the Bastard
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PostPosted: 22:57 - 30 Dec 2021    Post subject: Reply with quote

stinkwheel wrote:
Property prices have a lot to answer for.


Pretty sure that mortgage costs aren't included for CPI which is the chosen index of inflation for pensions and wages these days.

This isn't to say they aren't a cause of inflation, to my mind the move to CPI just means property bubbles will be deflated earlier.

These only really affect investors and buy-to-let so not really an issue unless interest rates get to '90s levels again and people end up in negative equity and unable to pay the interest on the family home.
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Fat Angry Scotsman
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PostPosted: 23:39 - 30 Dec 2021    Post subject: Re: Probably stupid question of the year but.... Reply with quote

Polarbear wrote:
Your statement I have highlighted is wrong. Deflation is not allowed. Governments manipulate the system to ensure there is no deflation. If market conditions support it they are manipulated immediatly to stop it. Inflation is designed in the system. The bank of England are meant to control inflation at 2 percent. Why? Why not 0%.


Inflation isn’t set by the Government, it’s set by consumers through their buying (or not buying) of goods and services.

Government can influence inflation through policies, tax breaks, tax hikes, interest rates, etc to either incentivise or disincentivise consumers from spending, as well as change the velocity of money through how people and institutions spend, invest or save money.

The Government can make moves to influence inflation but they do not directly control it. That lies in the actions of the people.

Also they aim to control inflation at a set level for the reason I set out in my previous reply as well as to avoid hyperinflation or runaway inflation.

EDIT: I’m not saying you’re wrong, just espousing further on the inflation point. Deflation is bad for an economy as it would mean a reversal in growth of the economy.
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hellkat
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PostPosted: 01:04 - 31 Dec 2021    Post subject: Re: Probably stupid question of the year but.... Reply with quote

Moth wrote:
Some stuff


FFS.
Who's this, now?

Thanks to this noob/sock, I have Demolition Man going round in my head Shocked
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mentalboy
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PostPosted: 01:30 - 31 Dec 2021    Post subject: Reply with quote

Islander wrote:
Capitalism and the worship of money. Wink


^^^ This.

If there were no inflation a lot of chair bound gamblers would have to get their hands dirty doing proper work.
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Copycat73
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PostPosted: 16:59 - 31 Dec 2021    Post subject: Reply with quote

stinkwheel wrote:
Property prices have a lot to answer for.


thats down to supply .. however have you seen how many developments are springing up everywhere .. not super sized .. well most of them anyway .. lots of sub 100 unit..

caveat .. in and out around Gateshead on a 100mile radius..
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Polarbear
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PostPosted: 19:27 - 31 Dec 2021    Post subject: Reply with quote

Around MK there are huge estates consisting of 1000's of homes being thrown up. It's an absolute mess and will end up being a shithole in the future. All the plans of green spaces, fast infrastructure that were planned originally for MK are being ignored to get as many homes as possible built.

Edited to add they aren't cheap either. 4 beroom ones with small gardens and enough parking for one car, half a million quid.
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Easy-X
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PostPosted: 19:57 - 31 Dec 2021    Post subject: Reply with quote

Same thing in Cornwall, loads of housing estates imposed by central government Sad Easier to get away with if you classify the old clay pits as brown field sites.
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mentalboy
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PostPosted: 20:21 - 31 Dec 2021    Post subject: Reply with quote

Easy-X wrote:
Same thing in Cornwall, loads of housing estates imposed by central government Sad Easier to get away with if you classify the old clay pits as brown field sites.


Tim Smit seemed to manage OK with using a brownfield site.
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Easy-X
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PostPosted: 15:00 - 01 Jan 2022    Post subject: Reply with quote

mentalboy wrote:
Easy-X wrote:
Same thing in Cornwall, loads of housing estates imposed by central government Sad Easier to get away with if you classify the old clay pits as brown field sites.


Tim Smit seemed to manage OK with using a brownfield site.


Yes but those were all things people wanted (or at least could respect upon completion.)

Randomly placed "Eco towns" ? The need for housing is due to emmets buying second or third homes that spend most of the year unoccupied Sad
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