# Inflation to fall dramatically?



## peemac (14 Nov 2022)

I'm an anorak when it comes to commodities - I blame the movie Trading Places and the Florida Orange Juice futures.

In the last few weeks a huge raft of commodity prices have been gradually falling and the cumulative drops have been quite substantial on some

Wheat, Butter, Soy, Coffee, Cheese, Natural Gas, Coal, Lumber, Rapeseed oil, Palm oil and even Butter! They are all futures, so probably take a 3-4 months to feed into pricing, but it has been a consistent drop and a substantial drop. Refining margins for fuels, especially diesel, have also fallen substantially and will feed into pumps quite quickly all around Europe. 

Then add in a weakening dollar (finally) with some banks saying the Euro has turned bullish.

If this starts to put the brakes on factory input costs, you could see the ECB and the Fed pull back on interest rate hikes as inflation forecasts will be quite different to what they currently are. 

But the best news is we can possibly look forward to Kerrygold being back under €3.50 in the spring


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## Purple (14 Nov 2022)

Does that not mean that the interest rate rises have worked and that we are heading into a global recession?


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## peemac (14 Nov 2022)

Purple said:


> Does that not mean that the interest rate rises have worked and that we are heading into a global recession?


I think there's more to it than that, but its certainly a factor and the fear factor of further increases may also be in play.  

The shock of the Ukraine war was the cause of many increases especially in fuel/energy (including Coal) and some foodstuffs such as wheat. Most of the world worked together to change fuel supply routes and the reliance on Russian fuel is all but gone at this point with the milder weather around Europe also assisting. Even the 2023/24 winter market predictions of gas returning to $300 have dissipated.  

Its the fairly sudden and fairly substantial drop and the fact that its across the board that is surprising as very few were predicting such changes just a few weeks ago.

If the drops are sustained into the end of the year, I think the rhetoric from the central banks will change and that bodes well for mortgage rates.


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## Purple (14 Nov 2022)

peemac said:


> I think there's more to it than that, but its certainly a factor and the fear factor of further increases may also be in play.
> 
> The shock of the Ukraine war was the cause of many increases especially in fuel/energy (including Coal) and some foodstuffs such as wheat. Most of the world worked together to change fuel supply routes and the reliance on Russian fuel is all but gone at this point with the milder weather around Europe also assisting. Even the 2023/24 winter market predictions of gas returning to $300 have dissipated.
> 
> ...


Yes, the 7.7% October inflation rate in the US rather than the predicted 8% has had a significant impact on sentiment, with the expectation that the 0.75% December FED interest rate rise that is baked into the market won't happen.


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## Allpartied (14 Nov 2022)

Inflation will, inevitably, fall.  Though prices will not, necessarily, fall.  
Inflation is comparing the price of something now, to the price of something 12 months ago.  
Once the anniversary of the Ukraine war is reached, then inflation will compare the price of things in March/April of 2022 to the price of things in 2023.  It was always going to fall, using that calculation.   
The interest rate rises were a brainless reaction, caused by brainless economists.   

If prices do fall, it will be because of a massive slump in demand, caused by a totally unnecessary recession, engineered by braindead central bankers.


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## interested21 (14 Nov 2022)

Purple said:


> Yes, the 7.7% October inflation rate in the US rather than the predicted 8% has had a significant impact on sentiment, with the expectation that the 0.75% December FED interest rate rise that is baked into the market won't happen.


The October inflation report also showed that month-on-month inflation is slowing significantly in the US. This should mean that the base effect will erode away a lot of inflation as well.


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## joe sod (14 Nov 2022)

I think inflation is with us for a good while yet  ,we have had 40 years of very low inflation and ultra low interest rates for the last decade,  in the 1970s inflation was there for the guts of a decade.  

As for energy and commodities they had their worst decade upto 2020, then covid exasperated everything driving oil prices briefly negative. Because of this there has been little investment in this area and commodity companies are just running down their reserves and investing little in new capacity.  Even in Ireland we have Eamon Ryan sitting on his hands and delaying issuing a licence to allow drilling to prove up an oil reserve off the coast of Cork


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## peemac (14 Nov 2022)

Allpartied said:


> Inflation will, inevitably, fall.  Though prices will not, necessarily, fall.
> Inflation is comparing the price of something now, to the price of something 12 months ago.
> Once the anniversary of the Ukraine war is reached, then inflation will compare the price of things in March/April of 2022 to the price of things in 2023.  It was always going to fall, using that calculation.
> The interest rate rises were a brainless reaction, caused by brainless economists.
> ...



Yes, but it may fall quite a bit quicker than they were forecasting just a few weeks back. That then would see interest rates rise less required and could then have effect of share prices and also see economies avoid recession or at least avoid any deep recession.  

Latest prediction for Q4 2023 gas prices is $130-$150. 4 weeks ago they were giving a range of $250-$350. That alone would see a decent drop in electricity prices which has been a huge driver of inflation in the past few months.


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## Purple (15 Nov 2022)

peemac said:


> Yes, but it may fall quite a bit quicker than they were forecasting just a few weeks back. That then would see interest rates rise less required and could then have effect of share prices and also see economies avoid recession or at least avoid any deep recession.


Global debt in the 70's was 100% of global GDP. Now it's 350%. A bit of inflation wouldn't do that any harm.


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## VonHohenzollern (15 Nov 2022)

A lot of commodities (especially food) trails the price of fuels. Natural gas is the primary ingredient for fertiliser and oil is needed for cultivation and pesticides. It gets worse for most animal sourced foods as they are fed grains, so the cost of inflation for the livestock farmer is higher again. 

However what is driving food prices is not just the shock of the war. Grain prices are still quite high because one of the worlds grain/oilcrop baskets is out of commission (it usually supplies 1/3 of Europe's livestock feed....). This is noticeable as EU level milk production is back significantly 5-10% even as EU farmers are driving up the price of crops to feed their livestock. Weather instability in South Asia and Oceania has also not helped as grain production due to flooding has been hampered. All of this is making feeding livestock quite expensive. 

I do not forsee food (especially animal sourced food) getting noticeably cheaper anytime soon. Good news for Ireland's pasture based production; bad for all consumers.


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## joe sod (15 Nov 2022)

Then there is the issue of reducing fertiliser use through organic farming, production of biofuel   , planting large areas with trees again and even solar farms taking acres away from food production. 

All this points to alot less food being produced,  much higher prices and this causing inflation to stay around for a long time. As was pointed out above the full effect of increased cost of food production has still not made it onto the shop shelves


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## Purple (15 Nov 2022)

joe sod said:


> Then there is the issue of reducing fertiliser use through organic farming, production of biofuel   , planting large areas with trees again and even solar farms taking acres away from food production.


If it was up to me I'd ban most biofuels as they have a minimal impact on CO2 and can have a serious environmental and ecoiogical impact.

The only solution is to eat less meat. I'm not a fan of the idea on a personal level but there's no environmental argument against it.


joe sod said:


> All this points to alot less food being produced,  much higher prices and this causing inflation to stay around for a long time. As was pointed out above the full effect of increased cost of food production has still not made it onto the shop shelves


It's worth pointing out that there are more fat people than hungry people in the world so we already produce too much food, even for the 8 billion of us that there are now.


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## nest egg (15 Nov 2022)

Allpartied said:


> If prices do fall, it will be because of a massive slump in demand, caused by a totally unnecessary recession, engineered by braindead central bankers.


what was the alternative to increasing rates? let inflation run?


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## Purple (16 Nov 2022)

Allpartied said:


> If prices do fall, it will be because of a massive slump in demand, caused by a totally unnecessary recession, engineered by braindead central bankers.


Inflation kills economies and nations. It is critical that it is controlled. If a manufactured recession is what is required to control it then it's a small price to pay.


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## Allpartied (16 Nov 2022)

Purple said:


> Inflation kills economies and nations. It is critical that it is controlled. If a manufactured recession is what is required to control it then it's a small price to pay.



Of course, its a small price to pay if you're not the guy being turfed out of his home, or sacked, or left with a collapsing school, or an underfunded health service.   
Was inflation caused by huge demand?  By rapid wage rises? Was it caused by an excess of capital in the economy? 
The answer to each of these questions is " No"   It wasn't caused by any of these things, which raising interest rates is supposed to control 
It was, almost exclusively, caused by external factors on the supply side.   

Left alone, inflation would fall anyway.   Because there is not a huge increase in demand, there is just a higher price for the essential stuff being purchased.   If the supply side continues to cause inflation pressures, then interest rates won't make a bit of difference.   
But what it will do , is increase poverty, increase mortgage defaults, increase business bankruptcy, reduce consumption, reduce investment, reduce purchasing power and deflate the economy.


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## T McGibney (16 Nov 2022)

Allpartied said:


> Was inflation caused by huge demand?  By rapid wage rises? *Was it caused by an excess of capital in the economy?*
> The answer to each of these questions is " No"


Hmmm.


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## Allpartied (16 Nov 2022)

T McGibney said:


> Hmmm.


Wages have risen below inflation, which has been pretty low, for the last 10 years.   So, the capital, if it has expanded is not in the consumer's pocket.   In fact, many people's wages are still, in actual terms, lower than they were in 2007/8.   In terms of inflation adjustment they are significantly below those levels.    The people who have the capital, don't spend it in Centra, or  Dunnes Stores, or DID Electric, so they're definitely not causing this inflation


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## nest egg (16 Nov 2022)

So either hike rates in response to a war-induced / QE-derived inflation, or take the gamble and let inflation run. 

It may fall in response to falling input / fossil fuel costs on its own. It may become ingrained with wages chasing prices in a vicious circle. I don't think anyone can say with certainty what will happen.

There are no silver bullets, it's naïve to think that CBs don't understand the situation however. They did hold off raising rates (especially the ECB), even changing their methodologies to allow for it. They've ultimately though gone with rate hikes, which I would guess is what they believe is the lesser of two evils.


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## T McGibney (16 Nov 2022)

Allpartied said:


> Wages have risen below inflation, which has been pretty low, for the last 10 years.   So, the capital, if it has expanded is not in the consumer's pocket.   In fact, many people's wages are still, in actual terms, lower than they were in 2007/8.   In terms of inflation adjustment they are significantly below those levels.    The people who have the capital, don't spend it in Centra, or  Dunnes Stores, or DID Electric, so they're definitely not causing this inflation


All beside the point. Nobody's blaming consumers for inflation.


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## joe sod (16 Nov 2022)

Purple said:


> Inflation kills economies and nations. It is critical that it is controlled. If a manufactured recession is what is required to control it then it's a small price to pay.


Yes that's exactly what they are trying to do cause a recession to bring down inflation. That means jobs will be lost in the frothy sections of the economy like tech etc. That means that more people will have to go back to jobs they were doing before like in hospitality and construction . Of course the financial guys are never that explicit but that's the net result


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## Allpartied (16 Nov 2022)

I think this article explains it quite well.









						'The Bank of England's 'incompetent' interest rates hike is dangerous for Brits'
					

Professor Richard Murphy, political economist and chartered accountant, says increasing interest costs will force hundreds of thousands (if not millions) of UK households into poverty




					www.mirror.co.uk


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## Allpartied (16 Nov 2022)

Purple said:


> Inflation kills economies and nations. It is critical that it is controlled. If a manufactured recession is what is required to control it then it's a small price to pay.


Inflation wouldn't " Run", unless the entire Arabian peninsula is consumed by war.   Inflation will fall, once the one-off effects of the Ukraine war have reached a one year anniversary.   By May 2023, we will be comparing prices with May 2022, and the inflation rate would fall, maybe even become a deflation.  Interest rate rises are, quite likely, to increase the deflationary aspect of this economic crisis.   And if you think inflation is bad, you wanna meet  Mr Deflation.


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## T McGibney (16 Nov 2022)

Allpartied said:


> I think this article explains it quite well.
> 
> 
> 
> ...


Murphy, who in 2015 wanted even more QE. 









						The man behind Corbynomics: an accountant from leafy Norfolk
					

A Jeremy Corbyn win could take Richard Murphy from the rural town of Downham Market to No 11 Downing Street




					www.theguardian.com


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## Allpartied (16 Nov 2022)

T McGibney said:


> Murphy, who in 2015 wanted even more QE.
> 
> 
> 
> ...


Indeed, QE saved the world.  There is a lot of nonsense talked about the " magic money tree", but the economic collapse which would have occurred in 2008 would have been much, much worse, without massive Central Bank intervention.   Its a lesson which the bankers seem to have forgotten, as they, launch us into an avoidable depression. 
My guess, is that by this time next year, they will be slashing interest rates and running the printing press at full speed.

Though, maybe, address the point he makes about the nature of the inflation we are dealing with.  Its not demand lead inflation.


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## T McGibney (16 Nov 2022)

Allpartied said:


> Indeed, QE saved the world.  There is a lot of nonsense talked about the " magic money tree", but the economic collapse which would have occurred in 2008 would have been much, much worse, without massive Central Bank intervention.   Its a lesson which the bankers seem to have forgotten, as they, launch us into an avoidable depression.
> My guess, is that by this time next year, they will be slashing interest rates and running the printing press at full speed.
> 
> Though, maybe, address the point he makes about the nature of the inflation we are dealing with.  Its not demand lead inflation.


Your argument is almost a parody of itself. Of course expansion of the money supply sooner or later causes inflation.

This is from the Guardian 2015 piece linked above.



> At the heart of Murphy’s project to reinvent Labour economic policy is what he calls “people’s QE”, a policy of using money created by the Bank of England to invest in public infrastructure projects, at the same time as boosting employment and economic growth.
> 
> Murphy regards it as a natural extension of the £375bn quantitative easing programme already undertaken by the Bank, starting in 2009, to unblock the credit markets in the depths of recession, almost all of which was spent on buying government bonds, known as gilts.
> 
> But opponents of the idea, including Corbyn’s leadership rival Yvette Cooper, claim that it would undermine the independence of the Bank *and unleash inflation and financial market turbulence.*


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## ryaner (16 Nov 2022)

Allpartied said:


> Left alone, inflation would fall anyway.   Because there is not a huge increase in demand, there is just a higher price for the essential stuff being purchased.   If the supply side continues to cause inflation pressures, then interest rates won't make a bit of difference.


There are many many sectors which saw 100%+ increases in demand, and they would likely have been higher if the supply side could have kept up. There was a ton of extra money injected into the system which has to work its way out somewhere.


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## Allpartied (16 Nov 2022)

T McGibney said:


> Your argument is almost a parody of itself. Of course expansion of the money supply sooner or later causes inflation.
> 
> This is from the Guardian 2015 piece linked above.


Well, QE started in 2008 and it was unprecedented in its scale.  The result was an inflation rate that hovered around 0% and interest rates that went below 0.  
The inflation has only come when the supply side seized up.  Its nothing to do with QE


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## T McGibney (16 Nov 2022)

Allpartied said:


> Well, QE started in 2008 and it was unprecedented in its scale.  The result was an inflation rate that hovered around 0% and interest rates that went below 0.
> The inflation has only come when the supply side seized up.  Its nothing to do with QE


Yeah right. All those predictions of an eventual inflation disaster were of course totally unfounded.


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## joe sod (16 Nov 2022)

ryaner said:


> There are many many sectors which saw 100%+ increases in demand, and they would likely have been higher if the supply side could have kept up. There was a ton of extra money injected into the system which has to work its way out somewhere.


That's the other crucial factor supply was constrained during covid with the lockdowns but demand wasn't, it was simply stored up and released at the end of the lockdowns. Supply is still constrained because production of goods and services is still not back at pre Covid levels, hence inflation
Look at the NCT backlog that's still there nearly 2 years later because of the closure of the NCT centres during covid. It would have been more sensible just to extend on the NCT certs of cars that were not tested and then start off from that point rather than creating a backlog which they can't now clear. There was little driving then anyway with the restrictions


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## Purple (16 Nov 2022)

Allpartied said:


> Of course, its a small price to pay if you're not the guy being turfed out of his home, or sacked, or left with a collapsing school, or an underfunded health service.


Thankfully we have one of the best funded healthcare systems in the world, have spend a fortune on new schools over the last 20 years and have amongst the lowest rates of house repossessions in the developed world.


Allpartied said:


> Was inflation caused by huge demand?  By rapid wage rises? Was it caused by an excess of capital in the economy?


Yes, it was caused by excessive capital in the economy, as was the current housing shortage. 


Allpartied said:


> The answer to each of these questions is " No"   It wasn't caused by any of these things, which raising interest rates is supposed to control
> It was, almost exclusively, caused by external factors on the supply side.


Nope.


Allpartied said:


> Left alone, inflation would fall anyway.   Because there is not a huge increase in demand, there is just a higher price for the essential stuff being purchased.   If the supply side continues to cause inflation pressures, then interest rates won't make a bit of difference.
> 
> But what it will do , is increase poverty, increase mortgage defaults, increase business bankruptcy, reduce consumption, reduce investment, reduce purchasing power and deflate the economy.


Left alone it will cause a much bigger recession later.


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## Purple (16 Nov 2022)

Allpartied said:


> Well, QE started in 2008 and it was unprecedented in its scale.  The result was an inflation rate that hovered around 0% and interest rates that went below 0.
> The inflation has only come when the supply side seized up.  Its nothing to do with QE


QE has massively increased global debt levels, up 30% in the last 5 years. It was 100% of global GDP in 1973. Now it's 350%. That's not a good thing. Increasing money supply causes inflation.

Have a read of this. Debt is not a problem in itself but a rising debt to GDP ratio is a good indication that the debt servicing capacity of the economy isn't rising as fast as the debt levels. That means money is worth less within that economy. That causes inflation. Around 85% of all QE money has stayed in Capital Markets and those markets have inflated by more than 100% since 2008. The global rise in housing costs is a result of the same thing.


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## Allpartied (16 Nov 2022)

T McGibney said:


> Yeah right. All those predictions of an eventual inflation disaster were of course totally unfounded.


Yes, they were, as proved by the inflation rate over the last 14 years and, as will be proved, by the inflation rate over the next 14 years.
One blip, caused by war, supply side shocks and a global pandemic does not mean QE caused massive inflation.  Because, those things ( war, supply side shocks and a global pandemic) are what caused this temporary inflation
When we're sitting here, next year with deflation and QE is pumping like mad, will you still believe QE is the cause of inflation?


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## T McGibney (16 Nov 2022)

Allpartied said:


> One blip, caused by war, supply side shocks and a global pandemic does not mean QE caused massive inflation.  Because, those things ( war, supply side shocks and a global pandemic) are what caused this temporary inflation



If you drive down the wrong side of a motorway for 40 miles and eventually hit a truck, is it your driving or the truck that's the cause of your crash?


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## Purple (16 Nov 2022)

Allpartied said:


> When we're sitting here, next year with deflation and QE is pumping like mad, will you still believe QE is the cause of inflation?


QE was introduced during a period in which the global economy was deflationary anyway. Most of the money went into financial institutions and was used to fix their balance sheets and offset the cost of toxic assets. It was not given out in loans. In effect it was used to prevent major economies going into a deflationary nosedive. If the Financial crash hadn't happened QE would have been inflationary but since most of the money didn't make it into the market it didn't cause consumer price inflation because the Banks kept it rather than lending it out. Therefore the impact of fractional reserve banking on money supply didn't happen. In fact because it caused asset price inflation while artificially depressing interest rates it resulted in the gap between the rich and poor (or average) increasing.

Increasing money supply in the broader economy at a faster rate than economies are growing is inflationary. So QE worked but now global debt levels are massive and Banks are lending again and all that extra capital is chasing the same assets and products. 

Think about it; if QE was the answer to the potential deflationary spiral which was a real possibility after the Crash then it must be inherently inflationary. Since it's a new phenomenon it's hard to know just how inflationary it will turn out to be.

_Edit: The above is just my semi-educated opinion. I'm happy to be shown to be wrong._


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## nest egg (16 Nov 2022)

Purple said:


> ....In fact because it caused asset price inflation while artificially depressing interest rates it resulted in the gap between the rich and poor (or average) increasing.


That's a great point. I hadn't thought about zero interest rates being a direct consequence of the banks hoarding the QE funds!


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## Allpartied (17 Nov 2022)

Purple said:


> QE was introduced during a period in which the global economy was deflationary anyway. Most of the money went into financial institutions and was used to fix their balance sheets and offset the cost of toxic assets. It was not given out in loans. In effect it was used to prevent major economies going into a deflationary nosedive. If the Financial crash hadn't happened QE would have been inflationary but since most of the money didn't make it into the market it didn't cause consumer price inflation because the Banks kept it rather than lending it out. Therefore the impact of fractional reserve banking on money supply didn't happen. In fact because it caused asset price inflation while artificially depressing interest rates it resulted in the gap between the rich and poor (or average) increasing.
> 
> Increasing money supply in the broader economy at a faster rate than economies are growing is inflationary. So QE worked but now global debt levels are massive and Banks are lending again and all that extra capital is chasing the same assets and products.
> 
> ...


You are right that QE was designed to create inflation, but as you say the method was faulty. 
It worked to some extent and prevented economies falling into deflationary spirals.  

However, as most of the capital went to banks, it was hoarded or used to pay down debt.  As such there was, virtually, no inflation over the last 14 years.  The current inflation is not related to the money supply ( How can you have excess money supply and a cost of living crisis?). People are simply paying more for the same essential things, like heating, transport, food and shelter. whilst their income has, largely, stagnated.  

It was further exacerbated by austerity, a deliberate choice to make things worse.   If private investment stalls or disappears, then the state, through public investment should step in and start investing/spending public infrastructure, services.   We saw this during Covid when private business ceased, almost completely.  Without massive state spending the economy would have collapsed, catastrophically.  

There is a massive disconnect between the capital value of stuff like property or shares and the real economy.  By the real economy I mean the productive wages of workers, or the saved wages of pensioners,  the actual amount of money that most people have access to.   Those people are now spending a larger portion of their income on that essential stuff.  

As far as I can see there are only two outcomes.   Either lots of inflation, including wage inflation, or deflation.  The gap between the real economy and the fantasy economy ( stock markets, property prices, commodity investments) is too high, dysfunctionally high.  

Something has to break to bring ordinary people's purchasing power back to normal.    For the ordinary Joe, inflation is much more manageable than deflation.   A deflationary depression brings mass unemployment, increasing debt burdens and the destruction of public services.


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## Purple (17 Nov 2022)

Allpartied said:


> You are right that QE was designed to create inflation, but as you say the method was faulty.
> It worked to some extent and prevented economies falling into deflationary spirals.


Okay, so increasing money supply is inherently inflationary.


Allpartied said:


> However, as most of the capital went to banks, it was hoarded or used to pay down debt.  As such there was, virtually, no inflation over the last 14 years.


There was massive Capital price inflation. Those who owned property or had pension funds post 2008 were the real winners.


Allpartied said:


> The current inflation is not related to the money supply ( How can you have excess money supply and a cost of living crisis?).


It's just inflation, not a crisis. We need to stop catastrophising everything. It's easy to have inflation when there is excess money supply if that money is not in the consumer economy. 


Allpartied said:


> People are simply paying more for the same essential things, like heating, transport, food and shelter. whilst their income has, largely, stagnated.
> 
> It was further exacerbated by austerity, a deliberate choice to make things worse.   If private investment stalls or disappears, then the state, through public investment should step in and start investing/spending public infrastructure, services.   We saw this during Covid when private business ceased, almost completely.  Without massive state spending the economy would have collapsed, catastrophically.
> 
> ...


I agree with that, though the cohort that benefitted most from that capital inflation are pensioners.


Allpartied said:


> Something has to break to bring ordinary people's purchasing power back to normal.


I agree.


Allpartied said:


> For the ordinary Joe, inflation is much more manageable than deflation.   A deflationary depression brings mass unemployment, increasing debt burdens and the destruction of public services.


Run away inflation will lead to a much bigger recession/depression.


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## joe sod (17 Nov 2022)

Allpartied said:


> However, as most of the capital went to banks, it was hoarded or used to pay down debt. As such there was, virtually, no inflation over the last 14 years. The current inflation is not related to the money supply ( H


The bank's didn't "hoard" the money they were given in exchange for loans, because the capital put  in just cancelled out the value of the loans that were exchanged. The banks were then compelled by regulations to maintain a high proportion of their capital in "safe assets" such as government bonds.
That's a key reason why governments were able to get money in at such low and negative interest rates , they had forced buyers in the financial institutions. The banks didn't really profit at all from the QE and negative interest era you just have to look at the bank's share prices since 2010 to see that. The share prices of the banks are only recovering now because the era of negative interest rates has ended .
It was pointed out in another thread here that a large proportion of mortgages in Ireland had little or no repayments made in the last 5 years and the banks are still unable to reposess these houses. That's hardly an environment for bumper bank profits and is a key reason why we have lost Ulster and KBC Bank in the last year


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## fistophobia (17 Nov 2022)

Inflation hurts lower earners by more.
I went back to Tesco to buy a pack of posh nuts, was 300c.
Now its 375c, so I walked away. 
You might say, big deal, you are a tightwad.
My point is.. you fight inflation at a personal level.


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## RichInSpirit (17 Nov 2022)

fistophobia said:


> Inflation hurts lower earners by more.
> I went back to Tesco to buy a pack of posh nuts, was 300c.
> Now its 375c, so I walked away.
> You might say, big deal, you are a tightwad.
> My point is.. you fight inflation at a personal level.



For sure, I am partial to the Lidl version of Ambrosia creamed rice. I ran out of shopping time a week ago and I had to buy some real Ambrosia creamed rice in Centra. 
€1.85 per can instead of €0.45 in Lidl.
400% difference in price.
I know that price difference wasn't really inflation, just different style shops and brands, I suppose.


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## Purple (18 Nov 2022)

fistophobia said:


> Inflation hurts lower earners by more.
> I went back to Tesco to buy a pack of posh nuts, was 300c.
> Now its 375c, so I walked away.
> You might say, big deal, you are a tightwad.
> My point is.. you fight inflation at a personal level.


The input costs to produce those nuts has increased, as have the overheads of everyone in the supply chain. Tesco aren't profiteering, they are reflecting those increases. What you have outlined is the business cycle and why inflation is mainly self correcting as it usually causes recessions. 
Where the real damage is done is when governments try to hold off the recession and make the downside worse.


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## peemac (20 Nov 2022)

The premise of the thread was that some in the ECB, and particularly Philip Lane, may persuade other members to hold back on going too high on interest rates to allow for the current increases to take effect and also take note that input costs will start dropping.

Some financial commentators are now suggesting that there will be just one further 0.5% rate hike before the ECB takes a pause.


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## MrEarl (21 Nov 2022)

Here's hoping... I think everyone is noticing the overall pinch from price inflation, alongside recent interest rate hikes, and not forgetting the opportunists who participate in Ripping Off Ireland.

With Christmas this close, its likely that many consumers will still spend a bit more than they can afford, so it would be super if we could hold off on further rate hikes until around March, next year (wishful thinking, unfortunately ).


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## joe sod (21 Nov 2022)

But the US interest rates will be 4.5 to 5 % before they maybe halting next year, another 0.5% will only bring the ECB to 2% that's still too low and too high a differential between US rates.
Philip lane was wrong last year when he said that interest rates would not be rising so I think his influence within the ECB board would probably have fallen. Even Christine lagarde on the late late show a few weeks ago was re emphasizing that her key focus now was to fight inflation, she kept emphasizing that


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## Purple (25 Nov 2022)

joe sod said:


> But the US interest rates will be 4.5 to 5 % before they maybe halting next year, another 0.5% will only bring the ECB to 2% that's still too low and too high a differential between US rates.
> Philip lane was wrong last year when he said that interest rates would not be rising so I think his influence within the ECB board would probably have fallen. Even Christine lagarde on the late late show a few weeks ago was re emphasizing that her key focus now was to fight inflation, she kept emphasizing that


The head of Austria's Central Bank and member of the Board of the ECB Robert Holzmann said that he backs a 0.75% rate rise in December.
Isabel Schnabel, an ECB executive board member, also backed a 0.75% rise in December. She pointed out that the current energy subsidies being put in place to limit the impact of energy prices is inflationary. 

Sorry lads, the government isn't your Mammy and it can't shelter you from everything. Not even your Mammy can really do that. There's a war on and it's going to mean some minor hardship. We'll just have to put on our big boy pants and deal with it.


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## Delboy (25 Nov 2022)

joe sod said:


> But the US interest rates will be 4.5 to 5 % before they maybe halting next year, another 0.5% will only bring the ECB to 2% that's still too low and too high a differential between US rates.
> Philip lane was wrong last year when he said that interest rates would not be rising so I think his influence within the ECB board would probably have fallen. Even Christine lagarde on the late late show a few weeks ago was re emphasizing that her key focus now was to fight inflation, she kept emphasizing that


Lagarde also said she didn't know where this inflation surge had come from. It had appeared from nowhere!

She shouldn't have to emphasise her focus is to fight inflation...it's a core mandate of the ECB. It's a given


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## joe sod (25 Nov 2022)

Delboy said:


> Lagarde also said she didn't know where this inflation surge had come from. It had appeared from nowhere!
> 
> She shouldn't have to emphasise her focus is to fight inflation...it's a core mandate of the ECB. It's a given


because she knew that the ECB and others were the causes of it by printing all that money especially during Covid, she has to feign innocence about the whole thing now


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## noproblem (25 Nov 2022)

Delboy said:


> Lagarde also said she didn't know where this inflation surge had come from. It had appeared from nowhere!
> 
> She shouldn't have to emphasise her focus is to fight inflation...it's a core mandate of the ECB. It's a given


Am I the only one who feels she comes across as not knowing very much at all, apart from where she left the fake tan bottle.


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## Purple (28 Nov 2022)

Delboy said:


> Lagarde also said she didn't know where this inflation surge had come from. It had appeared from nowhere!



That's incredible and incredibly worrying.


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## Pinoy adventure (28 Nov 2022)

Diesel seems to be falling like a stone.
Down below €1:80 now


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## AlbacoreA (29 Nov 2022)

I think prices are strong for all the above reasons, but retailers and suppliers are also trying to increase or maintain profitability. Its noticeable how few Black Friday deals there were.


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## banjopotato (29 Nov 2022)

Pinoy adventure said:


> Diesel seems to be falling like a stone.
> Down below €1:80 now


Surely an effect of decreased Chinese demand due to lockdown...


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## AlbacoreA (29 Nov 2022)

Looking at few financial sites suggest its falling due to fear of recession. Might be temporary fall.


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## noproblem (29 Nov 2022)

Still can't understand how diesel and home heating oil are so dear. Dollar is down, brent crude is way down, refining costs are way down but the price is still out of order. Amazing how at least 2 of the biggest retail stations can sell at their pumps in different areas for substantially different prices in diesel and petrol, yet their heating oil price is exactly the same everywhere. We're told there's no price fixing? I would seriously question that.


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## T McGibney (29 Nov 2022)

noproblem said:


> Still can't understand how diesel and home heating oil are so dear. Dollar is down, brent crude is way down, refining costs are way down but the price is still out of order. Amazing how at least 2 of the biggest retail stations can sell at their pumps in different areas for substantially different prices in diesel and petrol, yet their heating oil price is exactly the same everywhere. We're told there's no price fixing? I would seriously question that.


When you're part of an oligopoly, you don't even have to fix prices to get what you want.


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## joe sod (29 Nov 2022)

You also have to remember that taxes are much higher on fuel than they were the last time the prices peaked in 2008. Back then oil went to 147 dollars a barrel but diesel was only 145 cent a litre. Now oil 70 to 80 dollars a barrel and diesel 185 cent a litre.
Also exchange rate with dollar is a  factor aswell but governments are taking much higher taxes.  
Where are they going to get this revenue if people switch to electric cars (although I think its going to happen much slower than people think)


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## peemac (1 Dec 2022)

noproblem said:


> Still can't understand how diesel and home heating oil are so dear. Dollar is down, brent crude is way down, refining costs are way down but the price is still out of order. Amazing how at least 2 of the biggest retail stations can sell at their pumps in different areas for substantially different prices in diesel and petrol, yet their heating oil price is exactly the same everywhere. We're told there's no price fixing? I would seriously question that.


Refining costs are currently $45, oil is $85, dollar is at $1.04. So 80c per litre. (159L in a barrel)
11c carbon tax, so 91c ex vat a litre landed.

Let's give 12c for importer and local distributor combined. That's €1.03. Add 13.5% vat and you are at €1160 for 1,000 litres.

About €60-€80 goes to the local distributor to pay the driver delivering to you.


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## FCBC12 (2 Dec 2022)

peemac said:


> Refining costs are currently $45, oil is $85, dollar is at $1.04. So 80c per litre. (159L in a barrel)
> 11c carbon tax, so 91c ex vat a litre landed.
> 
> Let's give 12c for importer and local distributor combined. That's €1.03. Add 13.5% vat and you are at €1160 for 1,000 litres.
> ...


Hi peemac,

What is your source for the refining cost? Would it be the same cost to produce diesel for cars?


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## FANTANA (2 Dec 2022)

Most of Europe’s diesel came from Russia, Primorsk to Rotterdam. This was a very short voyage and shipping it pre war was relatively cheap. Now the diesel is coming from further a field to make up the difference, increasing tonne miles (a metric of how many miles a tonne of cargo was shipped). Tanker freight costs have exploded recently which combined with increased mileage is significantly increasing the shipping costs of diesel. Gasoline has not been hit as badly as far less of it came from Russia, but keep in mind when you refine different products from crude you can change the ratios slightly but you can’t just say I want loads of diesel and no Gasoilne, naptha, Jet etc. these products need to be stored or moved on ships. Every ship that move gasoline is one less to move diesel further increasing diesel tightness and increasing the shipping cost as the shipper has less vessels to choose from and the Owner can name their price.


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## peemac (2 Dec 2022)

FCBC12 said:


> Hi peemac,
> 
> What is your source for the refining cost? Would it be the same cost to produce diesel for cars?


Thompson Reuters give average market price.
It's an estimate as it's not the official Platts price but will be in the region.

The refining cost today for diesel/ kero is quoted at $47, for petrol it's $13.

Historically diesel refining was $10 and petrol about $12 which is why diesel is currently about 15c higher than petrol even though duty is lower.


On the original topic, inflation is cooling and there are the first signs of potential talks on Ukraine.

If you are a glass half full type person, you'd be hoping that things will be quite good in late spring.


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## joe sod (2 Dec 2022)

FANTANA said:


> Gasoline has not been hit as badly as far less of it came from Russia, but keep in mind when you refine different products from crude you can change the ratios slightly but you can’t just say I want loads of diesel and no Gasoilne,


yes not many people understand that but if every barrel of oil is refined into its different grades anyway and that doesn't change, why would the refining costs of diesel. petrol gasoline be different and variable ? Surely the cost of refining should go up and down equally between diesel and petrol etc because when you refine diesel you also get petrol gasoline etc.

It also shows how stupid the policy of encouraging the purchase of diesel cars over petrol was back in 2008. Traditionally light passenger vehicles were always powered by petrol and heavy trucks, commercial vehicles and agricultural equipment by diesel, therefore there was always a stable equilibrium. Another factor with passenger vehicles getting diesel engines is that it allowed these vehicles get much bigger and now the proliferation of SUVs that consume alot of fuel and are too big for parking spaces


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## FANTANA (3 Dec 2022)

joe sod said:


> yes not many people understand that but if every barrel of oil is refined into its different grades anyway and that doesn't change, why would the refining costs of diesel. petrol gasoline be different and variable ? Surely the cost of refining should go up and down equally between diesel and petrol etc because when you refine diesel you also get petrol gasoline etc.
> 
> It also shows how stupid the policy of encouraging the purchase of diesel cars over petrol was back in 2008. Traditionally light passenger vehicles were always powered by petrol and heavy trucks, commercial vehicles and agricultural equipment by diesel, therefore there was always a stable equilibrium. Another factor with passenger vehicles getting diesel engines is that it allowed these vehicles get much bigger and now the proliferation of SUVs that consume alot of fuel and are too big for parking spaces


This article explains it better than I can. Supply and demand is a huge factor for refineries margins.



			https://www.argusmedia.com/en/news/2381339-europe-is-running-low-on-diesel-when-it-needs-it-most?amp=1


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## joe sod (3 Dec 2022)

"_Available refining capacity has shrunk. A wave of wholesale decommissioning and conversion to bioprocessing during the pandemic was followed by fires, explosions and malfunctions this year as refiners tried to maximise middle distillate output under heatwave conditions._"

Yes a good explanation, so refining capacity was decomissioned and converted to bioprocessing during Covid in Europe !! therefore Covid lockdowns also indirectly responsible to an extent. I remember the narrative at the time in 2020 when the oil price collapsed with collapsing demand that this was the transition away from fossil fuels happening, maybe the refiners and oil companies also bought into this judging from what happened.

Is this another factor  causing Putin to invade Ukraine , he saw that Europe was already highly dependant on russian gas and then as the lockdowns ended the demand for russian diesel also surged as Europe had also reduced its own refining capacity??
Im not saying it was decisive but surely governments in Europe should have been taking measures to maintain refining capacity during the lockdowns, did they actually believe all the hype that the drop in fossil fuel demand was permament?


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## Pinoy adventure (3 Dec 2022)

petrol €1.59
 Diesel €1.74 

It’s really dropping


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## Purple (8 Dec 2022)

There's an inverted Bond yield curve in the US. The biggest since 1981. 
In my opinion that shows:

The market thinks interest rates will increase more in the short term. That is a reaction to US economy is still adding jobs, showing that inflation is still not under control. 


It turns out that there might just be a link between labour and capital values and so spending a decade and a half printing money at unprecedented levels causes labour price inflation. Who knew... 


We can either massively increase wages or reduce capital values (the price of capital items). That's high inflation or high interest rates and Bond buy-backs.


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## ClubMan (12 Dec 2022)

Year of fighting inflation set to end with 24 hours of interest-rate hikes
					

The world's biggest economies are expected to unveil further rate hikes




					www.irishexaminer.com


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## ClubMan (13 Dec 2022)

New rate rise to send mortgage costs up by nearly €3,000 a year
					

Tracker and variable rate mortgage holders face another big financial hit as the European Central Bank (ECB) is set to hike its main lending rate again next week.




					m.independent.ie


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## demoivre (13 Dec 2022)

Purple said:


> There's an inverted Bond yield curve in the US. The biggest since 1981.
> In my opinion that shows:
> 
> *The market thinks interest rates will increase more in the short term.* That is a reaction to US economy is still adding jobs, showing that inflation is still not under control.



I don't get this. I would have said the opposite !

The inverted yield curve results from investors piling in to long dated bonds thus driving down long range yields. They do this to lock in returns  because they expect short term rates to *fall*.


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## Purple (13 Dec 2022)

demoivre said:


> I don't get this. I would have said the opposite !
> 
> The inverted yield curve results from investors piling in to long dated bonds thus driving down long range yields. They do this to lock in returns  because they expect short term rates to *fall*.


The inverted bond curve is a sign that the market thinks there's going to be a recession and so there is a flight to safe investments. That means that interest rates will fall in the longer term (the next year or so) but in the short term they will increase due to the need to counter the inflation caused by QE.


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## demoivre (13 Dec 2022)

Purple said:


> The inverted bond curve is a sign that the market thinks there's going to be a recession and so there is a flight to safe investments. That means that interest rates will fall in the longer term (the next year or so) but in the short term they will increase due to the need to counter the inflation caused by QE.



If the expectation were for short term interest rates to rise then investors would wait and  buy the short dated bonds to get the higher returns !


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## Purple (13 Dec 2022)

demoivre said:


> If the expectation were for short term interest rates to rise then investors would wait and  buy the short dated bonds to get the higher returns !


Not the interest rates on bonds, central bank rates. Sorry, my post was badly worded and totally confusing.


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## joe sod (15 Dec 2022)

peemac said:


> The premise of the thread was that some in the ECB, and particularly Philip Lane, may persuade other members to hold back on going too high on interest rates to allow for the current increases to take effect and also take note that input costs will start dropping.
> 
> Some financial commentators are now suggesting that there will be just one further 0.5% rate hike before the ECB takes a pause.


I think Philip Lane's influence on the ECB is well and truly gone, fighting inflation and raising interest rate is now the predominant policy. The ECB was too late in starting to raise rates and they need to watch the exchange rate with the dollar which is now going in the right direction and a key reason why fuel prices have dropped lately. The ultra low interest rates were a key factor in stoking inflation and getting it burning again


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## Purple (16 Dec 2022)

Christine Lagarde has said that Eurozone inflation will continue to be high into next year and warned the markets that there'll be another 0.5% rise in February and probably more after that.
US rates are twice as high as the Eurozone. That makes the low Eurozone rate unsustainable. It will have to move closer to the US rate.


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## Purple (19 Dec 2022)

The FT is reporting that core inflation is continuing to rise in most of the 33 economies that they track. The FED have increased their forecasted rate of core inflation for next year from 3.1% to 3.5%.


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## joe sod (19 Dec 2022)

Yes it may have eased back lately with energy prices falling back but the follow through inflation from those higher energy prices is now only working its way down to goods and services as new contracts for higher energy prices are completed.

We saw yesterday in the UK some of the biggest public sector marches and strikes since the 70s looking for pay rises,  very similar to what happened in the 70s inflation spiral, however irish public sector employees on much larger salaries than their UK counterparts


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## Purple (19 Dec 2022)

The deflationary effect of a billion Chinese entering the labour market and information technology and automation improving productivity negated the inflationary effect of cheap money over the last few decades but those factors have washed through the market now. 
Interesting times ahead.


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## Purple (6 Jan 2023)

The Economist magazine points to the impact China's reopening this year will have on inflation. They say it will drive up commodity and energy prices which will stoke inflation and so keep interest rates high. T'is a good point!


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## joe sod (6 Jan 2023)

On a more optimistic note maybe China won't have as big an impact on commodity prices in that they now have a forced seller, Russia . The west is barred from buying Russian energy and commodities and China has great bargaining power now with Russia. Once the Chinese factories go back into full production it will ease somewhat the supply chain bottle necks.
The main issue is labour shortages after the pandemic they need to get people back into jobs working


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