Services inflation actually went up though, not great for an economy that's 80% services
More bank rate rises to come
this post was submitted on 16 Aug 2023
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This is the best summary I could come up with:
The UK’s annual inflation rate fell sharply to 6.8% in July, down from 7.9% in June, as the drop in energy prices over the past year led to the smallest increase in the cost of living since February 2022.
Financial markets had been braced for a marked easing in upward price pressure last month, and the figure announced by the Office for National Statistics (ONS) was in line with their prediction.
The ONS said the main reason behind the fall was that the big jump in gas and electricity bills in July 2022 had not been repeated, although there was also a decline in annual food inflation last month to below 15%.
The shadow chancellor added: “After 13 years of economic chaos and incompetence under the Conservatives, working people are worse off – with higher energy bills and prices in the shops.”
Two years ago, inflation measured by the consumer prices index (CPI) stood at 2% – in line with the government’s target – but it rose steadily in the months that followed and hit 6.2% in February 2022.
Russia’s invasion of Ukraine in that month gave an added boost to inflationary pressure by pushing up global oil and gas prices, and inflation peaked at 11.1% in October before falling back.
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In a somewhat overly optimistic and tongue-in-cheek fashion (given the way that inflation is based on comparing particular prices as they are now with what they were a year ago and how it has consistently hovered around the 10% mark) I had sort of hoped that inflation would drop below 2% more or less on its own. This was based on the idea that a one-off event had sharply raised prices but that it would now be baked in and accommodated.
How hopelessly naive (and misinformed) was I eh?
The only naive bit of what you say is the idea that markets bake/price in anything.
If the last 15 years has taught us anything it's that "the market" doesn't know jack shit, and is incredibly reactive and twitchy.
That's not to say there aren't traders who can't spot a bargin, or make good bets, but we're less wisdom of crowds and more madness of the mob.
I'm wondering if that is still what's happening here. All the markets are still reacting to the huge price increases caused by the one off event.
Things like a business increasing prices, a competitor then realising their making less money than peer businesses etc. This all takes time to slow down and all affects the value of things. People will also be having pay reviews at different times (particularly contractors) and therefore labour costs will increase in a trickle rather than in one big swing.
Therefore, it doesn't seem impossible that inflation will slow down on its own, but I'm no economist.
I'm confused why we stare at the inflation rate so much. Haven't we proven at this point that we're suffering from good old fashioned price gouging. How does inflation decreasing EXACTLY ease cost of living. Does my landlord get a notice and go "Gah! They got me! Guess rent has to go down now"?
Inflation is a backward-looking measure. It doesn’t ease the cost of living, it simply lets policymakers know what’s going on with prices — and whether the Bank of England is doing its job.
On a personal level, you already know what your living costs are, so the level of the CPI has no relevance to your life. Nobody experiences CPI directly, as we all have different costs and preferences.
Firstly, inflation decreasing is a decrease in the rate of increase so it's never going to ease your cost of living. Your cost of living is still going up, just not as fast. Inflation is the derivative of the cost of living - the rate of change. (Similarly, the deficit is not the debt, the national deficit is the rate of change so a decrease in the deficit means that borrowing is still going up, just not as fast).
Inflation literally is "too much money chasing too few goods". Price gouging can only happen when there's not enough supply of something compared to the amount of people willing to pay for it. If there were more rental properties available than there were tenants looking to rent, then a landlord can't just go "I think I'll just double my rent to make more money" because no one would rent their property as there are others available. If on the other hand there are more tenants than there are properties (too much money chasing too few goods) a landlord can increase prices.
Except a lot of the inflation in the UK is due increased cost of the supply. They "literally" cannot afford to sell it cheaper.
Canadian CPI is back down to 3.3% and a large component of that is interest rate hikes increasing mortgage payments. There's a light at the end of the tunnel.