The cost of living... what can we do?

The government seems to be taking the credit for inflation slowing down.

The fact is, inflation is coming down simply because people are having to cut back, because they have no choice. Nothing to do with the any government action.

Put simply, if something usually costs about a quid, then it costs £1.20, then it costs £1.50, people will stop buying it if they don't absolutely need it, so demand goes down, so the rate of price increases slows down.

The bank of England has just increased interest rates again, because of a surprise hike in fruit and veg prices pushing the overall inflation figure higher than expected. They clearly are unaware that unusual weather in parts of Europe and North Africa have ruined a load of crops. This is a temporary blip, so should have been taken into consideration when making their decision.

 

Energy prices are the biggest factor in pushing up inflation, and we are told they are falling.

But will the price hikes that have gone on in the last year also come down.

Somehow I doubt it.

 

Current prices are as low as they are ever going to be. If inflation comes down to 0.1% prices will still go up.
Look on the bright side. Inflation in Argentina is running at over 100%.

Argentina inflation soars past 100% mark

 

My energy bill has gone up more than 100% from last year and that is with the government £67 hand out, next month is going to be hard.
No hand out next month.

 

The Bank of England cant do anything except raise rates as they arent clever enough to see the whole picture.
Drought, storms and war raises prices and jacking up interest rates aint going to make any difference.
They should be cutting rates to ease the burden on households and hope better crops and an end to the Ukraine war results in lowering prices .
If rates keep rising the banking system will collapse. As I found out yesterday RBS wont allow withdrawals. Tried to get 5k, they said no, 4k no, 3k no. Etc
Have to fill in a form to get my own money out. Went to Bank of Scotland and no problem.

So is RBS in trouble already ?

 

Shipping rates have plummeted to nearly pre pandemic levels, but for many commodities that are shipped they will still be expensive for sometime due to over stocked inventory. I ship in sulphate of iron from China, the last load I got was September 2021 when shipping rates were at record levels, it added £9 extra on a 25kg bag. Due to the extra cost, I have not moved as much as I normally would due to the high cost, so I have to wait until the stock level is low enough before reordering. For somethings it's not straight forward to be able to drop your prices straight away, but it can be with other items, the trouble is, they tend to max their profits for as long as they can.

 

Taken from Google:
The boss of British Gas-owner Centrica will receive bonuses worth £3.7m after the firm posted record profits in 2022. Chris O'Shea, who has refused bonuses for the past three years, will also get a £790,000 salary.

 

We are cutting back on things where we can.

 

The problem was that when all this lot started the interest rates were so low that they couldn't cut them, unless they went into minus rates.

I heard what you are saying on TV today from somebody and it does make some sense as the inflation is not from internal forces.

 

Here's why raising interest rates won't fix inflation.

We can broadly split our spending into two categories. Essential and discretionary. It's not quite that clear cut but let's go with it for simplicity.

Food is essential. No matter how much it costs, we have to eat.

Discretionary is things that we would like but not technically need right now. Let's focus on that.

Let's say you want to buy something for ten grand. In one year, you will have ten grand saved up.

If you want it now, you go to the bank and get a ten grand loan. Let's say they charge 5% interest, and you can afford to pay it back exactly one year from now. You will pay £10,500 back. This is the real cost of your ten grand purchase.

Let's say you save up, and with interest you might have £10,050 one year from now. But inflation is say 10%, so one year from now, your purchase will be £11,000. You've missed a whole year of not having the thing you wanted AND it's cost you nearly a grand more than if you'd took out the loan.

Ergo, unless interest rates are actually higher than inflation, there is no insensitive to wait.

 

Now the bank of England has resorted to begging and pleading. They make a fair point though, sort of.

Bank governor warns firms raising prices ‘hurts people’

 

I was thinking this the other day.
They are always saying that people shouldn't ask for more wages.

But at the same time they never tell companies to lower their profits.

 

I was just thinking the other day how people get so hung up on percentages.

A junior doctor, on about £30k per year wants a 35% pay rise. That would take them to about £40k. These days days that's not amazing, especially when you consider the years of earning potential they gave up to study, and the responsibility they take on.

Meanwhile, someone on, say £100k, gets a 10% pay rise. That's somehow much more affordable, in line with inflation, but it's roughly the same amount of extra money. Yes the latter will lose a bigger chunk of that to the tax man but, they get it straight back again if they pay it into their pension because of the higher rate tax relief.

That junior doctor, asking for a 35% increase, if they get it, should suddenly be able to buy a house to live in, because house prices are rising at about 10%, which is less than his 35% increase. Except 10% on a £250k house is £25k, more than double his 35% pay rise he's asking for.

 

A word always banded about in the 70s by union reps, "we must protect our differentials".
That's why they always quote percentages "brother".