UK inflation hits 9.1% as prices rise at fastest rate for 40 years | Hacker News Reader

UK inflation hits 9.1% as prices rise at fastest rate for 40 years

bbc.co.uk

40 pointssarreph48 comments

The working and middle classes in the UK have had a lost decade really.

2008 crash followed by austerity going on for way too long when it wasn't needed at all, followed by Brexit, Covid and now this.

The middle class enjoyed a decade of extremely low interest rates on their mortgages.

Covid has been a mixed bag and it has really depended on what sort of job you had. Many in the middle class have office jobs that 'just' moved to WFH and all those people actually benefited financially from the situation (cost of commute disappeared overnight).

I don't think many people have felt any change following Brexit so far...

NOW is the rude awakening: Prices up, interest rates up, back to office. Perfect storm on personal finances. Whilst unemployment is at record low it is predicted to go up as well.

Low interest rates on mortgages means the principal is higher due to astronomical prices.

Expanded access to credit just makes prices rise.

It's audacious to try claim that historically low interest rates have been bad for people with mortgages (which is most of the UK's middle class).

Not gp, but it seems clear to me that that low interest rates are bad for new home buyers, and only good for people holding mortgages as they drop.

That might be what you and gp both mean.

> but it seems clear to me that that low interest rates are bad for new home buyers

Well no. Low rates are by definition good for everyone who borrows money.

Edit: There is a strange assumption it seems that low rates are the cause of the increase in property prices and that there is essentially a bubble. If the banks accept to lend then low rates do allow people to borrow more, but claiming that high rates would be "better" or that this causes unreasonably "inflated" prices are a few steps too far.

Higher rates are not going to help you if you want to get onto the property ladder, and they are not going to help either if you are already on it.

Except the asset you're buying from low interest rates has balooned in value meaning your purchasing power still went significantly backwards.

It's not a stretch to claim that loose, expansionary monetary policy causes asset bubbles.

When buying a home, people care about the total amount of money they will spend. They do not particularly care if the seller or the bank gets their money.

If 'the market' decides a property is worth 3000/month, interests rates directly impact the selling price of the home.

Of course, I'm playing a trick by having the market price the monthly mortgage payment, and not price the property. Some people aren't going to take a mortgage so they care about the selling price only. But I'd argue that most people care about their monthly payment.

Now compare two scenarios: You by a home for 3000/month mortgage with a high interest rate, then rates drop. You by the same home for 3000/month mortgage with a low interest rate, then they rise.

In the first case, you can either refinance if you rate was fixed, or if it's adjustable your monthly payment drops. Any your home value goes up for the reason already mentioned.

In the second case, if it's fixed, that's good, but you lose that rate if you sell,if its adjustable your monthly payment goes up. And your home value goes down for the reason already mentioned.

Absolutely right, there isn't the usual balance of supply and demand setting the price with housing.

There's massively constrained supply, with ever growing demand, for a basic need that isn't optional (shelter). This means that the price is set by how much each potential buyer is able to borrow.

Low interest rates combined with a massive shortfall in house building and add in help to buy and those rates were low for a massively inflated initial asset.

Plenty of people who are middle class got furloughed or let go during Covid. Pretty much everyone I knew who were contractors were let go.

Brexit had an impact before the vote and immediately after the vote because inbound investments were paused, some HQ's were moved to different locations and the pound dropped in value. I'm not taking into account post actual leaving the EU because it's too complex to disconnect the impact from everything else going on.

Now we have a tidal wave heading towards us. Most working and middle class people just don't understand how bad it will get for some of them. Those that worked during covid, saved up and then didn't spend it all post lockdown will probably be ok. The others? Not so much once share prices crash and the boards of directors start making layoffs to get the share prices to rise and to make sure their portfolios are ok.

I'm expecting riots like Brixton, Handsworth etc. again in the UK.

The UK does not have fixed rate mortgages like that. If you don’t think Brexit is the root cause of inflation in the UK I don’t even know what to tell you.

I hate to tell you this, but many countries that didn't Brexit also have inflation right now...

Did you check the baltics? Close to 20%. Did they Brexit?

No, they had Russia invade Ukraine on their borders. The Baltics have had several inflationary shocks even during the “good” times - not least when joining the Euro, everything jumped in price by 30-50%.

Thanks, I know that, and I was replying to the guy saying inflation is because of brexit.

At least Biden is saying inflation is because of Putin, that’s one step less of a ridiculous statement, albeit still wrong.

Inflation is in the same ballpark in the UK, Eurozone, and US... Clearly if Brexit has any impact it is indeed small at the moment.

2% above the more reasonable parts of the Eurozone is not a small impact for everyday people - especially not those who have “done the right thing” and have savings.

The real issue in the UK is not austerity, but that since 2008 it has been ruled by governments that actively harmed its productivity growth, eventually leading to the current cost of living crisis. Today real wages are below 2007.

Central banks have a choice to make. After the insane bubbles they've blown for the last 20 years, and the government debt created along with that, they can either raise interest rates aggressively and basically bankrupt their countries for a while (this isn't necessarily a catastrophe), or they can inflate away the debt by refusing to raise interest rates.

I strongly suspect the only reason the US has been aggressive in rate hikes is because they can do it with the US dollar's reserve status. For the UK, EU, and others, it's not so clear.

It might be much easier on governments just to inflate the debt away, it will take longer and won't mean massive crashes. It will mean completely destroying most middle class and upper middle class savings. I think many governments won't mind doing that.

And the central bank interest rate is at 1.25%.

I think it is fair to say that the powers that be just don't care about inflation.

Actually, all the economists interviewed in the media warn against raising interest rates too aggressively.

1. They say that the bulk of inflation is imported (energy, food, etc) so raising interest rates makes no difference to inflation (and in fact can push cost of living further)

2. Demand is already crashing.

3. Economy is already contracting.

4. Effects of raisin rates can take 2 years to trickle down

So their estimate is that raising rates too aggressively would make things worse, not better.

Most economists are employed in banking and real estate ... seems to cause them to forget what they once read in their textbooks ...

Inflation has risen to 9.1%.... from 9% in April.

It’s supposed to go down and reset expectations. Instead the central banker goes on TV asking people to not request pay rises, which is equivalent to saying “the situation is totally out of control, the CB can’t and won’t do anything”. Which prompts everybody to ask for a pay rise because the central banker just told them to revise their inflation expectations upwards (hence strikes). Then he pretends to raise interest rates (he can’t really because it would upset Johnson’s main constituency) and nothing happens, apart from inflation going up. That was a majestic show of incompetence. Not the first one from the current breed of the British Conservative party, that appointed him.

It’s not by chance that countries like Italy and Germany, that are way more reliant on gas than the UK, have a much lower inflation and still an almost normal core inflation. They have a central bank that, Lagarde aside, is not a clownish shitshow.

It should be said that much of current inflation is due to the disruption of the British supply chains that was caused by Brexit. Short of re-joining the EU, that I’d vote against because we must stop putting up with the antics of the Englishman, the only way out I see, as a rando with some interest in economics, is a 1980-style recession.

> It should be said that much of current inflation is due to the disruption of the British supply chains that was caused by Brexit.

Not really: "Euro area annual inflation was 8.1 % in May 2022, up from 7.4 % in April 2022" [1], and of course it is, I believe, also 8.5-9% in the US.

[1] https://ec.europa.eu/eurostat/statistics-explained/index.php...

Eurozone inflation: 8.1 UK inflation: 9.1

Eurozone core inflation: 3.8 UK core inflation: 5.9

Where would the price level increase caused by a labour shortage end up: core or non-core inflation? Besides the UK started having a significant inflation differential with the eurozone since mid 2016.

https://www.newstatesman.com/business/2022/06/uk-inflation-b...

You are welcome

You are not explaining your rather bold claim that "most of UK inflation" is due to Brexit...

Also note that the UK and the Eurozone obviously have different currencies. At the moment we see a small difference in inflation rates, and?

- 2% in core inflation is not a small difference. It’s the average British worker losing 700£ a year more than the European

- of course they have different currencies, that’s exactly what we are talking about, and also different governments. One busy sabotaging its supply chains and the other doing whatever

- the UK has been having much more severe shortages than the rest of Europe (empty petrol stations everywhere bar NI?), that are having an impact on prices

> You are not explaining your rather bold claim that "most of UK inflation" is due to Brexit...

You are right, I should have said “much of the core inflation differential with the EU is due to Brexit”

You are welcome

> 'It should be said that much of current inflation is due to the disruption of the British supply chains that was caused by Brexit.'

I work with a UK retailer and, from what I see, supply chain disruption is 99% China. And, the Northern Ireland issue is currently a convenient excuse to refuse to supply since it was always economically unviable for large items anyways.

If all you have is a screw and a hammer, it doesn't really matter how hard you hit it.

I too advocate for greater inequality by raising interest rates. The income share of capital must rise at the expense of the income share of labor.

Actually, I don't. I would rather see the abolishment of quantitative easing and central bank controlled short term interest rates by eliminating the zero lower bound by introducing a demurrage fee on excessive amounts of liquidity.

Nobody wants that. The latter is indispensable to allow interest rates to fall below zero to allow the economy to unwind when it doesn't want to grow.

Secretly every single human on this planet prefers inflation over negative interest rates due to loss aversion. Everyone thinks they can save money by making negative interest rates illegal. The losses don't disappear, they hust leak into thr economy in the form of inflation. All hail the money illusion, in the money illusion we trust.

Imagine if you were painfully aware of inflation every single year, that your bank account would literally tell you, you lost X dollars from inflation but your salary is automatically adjusted upwards to match inflation. That is what a negative interest rate does and nobody wants that, they want to stick their head into the sand, they want to use inflation as a political tool for their own cause.

Instead, you get this nebulous, creeping feeling that something is going wrong but you don't know by how much. So you just assume the worst and think the government is conspiring against you.

Rising interest rates will bring down debt levels and asset prices in general ... I betcha that will lower inequality, not raise it.

Low interest rates benefit the wealthy, that's why they have been allowed to remain in place for a decade. Inequality accelerated during the 10s.

> Secretly every single human on this planet prefers inflation over negative interest rates due to loss aversion. Everyone thinks they can save money by making negative interest rates illegal. The losses don't disappear, they hust leak into thr economy in the form of inflation. All hail the money illusion, in the money illusion we trust.

I think you are right. Yet pulling off the band aid would be much better. And it would be better for inequality, as asset prices would collapse if you raised interest rates (check the US stock market, real estate, and bitcoin), which is where most wealth is stored.

> ... to allow the economy to unwind when it doesn't want to grow.

If our ecosphere had a vote, it'd probably oppose this paradigm of "we still desperately need a growing economy today".

What people do need is the basics: food, shelter, health care ... what they don't need is a turbo charged economy that is still based 80 % on fossil energy and on people being addicted to consumption of throw-away products.

They care. They want it high.

If you want to spoil the rest of your day... :-) This Deflation/Inflation calculator, courtesy of the German Bundesbank, will allow you to see, how much purchasing power you lost in the last 12 months for example...

https://www.bundesbank.de/en/service/school-service/interact...

Money is really just tokens to help distribute the real stuff made like cars and houses. During covid people slacked off making real stuff and the government handed out more tokens hence the price rises now people are trying to spend them. More tokens per real thing.

The interesting question is now covid is over if this is a blip or will keep going.

And the train prices will go up. I think they are already silly expensive compared to the continent

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