Good morning from Paul & Graham!

Inflation data

Is just out from the ONS at 07:00 - this looks encouraging, I see readers were discussing the forecasts of c.3.5% for CPI yesterday, it's come in slightly below  -


(excerpt above: with thanks to the ONS pdf release at 07:00 today)

Paul's comment - surely this now makes the case for interest rate cuts stronger? Although the Bank of England looks into a lot more data than just the headline inflation figures. Conventional wisdom is that central banks need to raise interest rates to curtail economic activity, when inflation rears its ugly head. However in this case, I think the inflation was mostly caused by supply chain problems during and in the aftermath of the pandemic, and the energy crisis, so inflation would have fallen by now anyway. 

There's also a persuasive argument that interest rate hikes in the UK might actually be fuelling inflation. Why? Because the impact on borrowers is mostly deferred, due to mortgages being fixed for a year or two, sometimes more. Meanwhile savers are feasting on interest income for the first time in c.15 years. In the short term anyway, higher interest rates have surely pumped money into the economy, not removed it? Although I don't have any reliable figures on this. 

Also higher interest rates are fuelling private rent increases. I'm in exactly that situation with a buy to let, and I've been relaxed about the rent, not increasing it for years in order to keep good tenants. However, now the mortgage is set to more than double, I've had to tell the tenants it has to go up to full market rent, and even that won't cover the increased mortgage. That must be happening throughout the economy, with private rents and mortgage payments gradually rising, creating a hotch-potch of different effects on different households. 

The sooner they get interest rates down to something more sensible, say 3.5%, the better. After years of being too low, they've overshot the other way now. This always seems to happen in most economic cycles, nobody making the decisions ever seems to learn, do they? Mind you, economists seem to have little to no ability to predict or plan the economy, so why do we take any notice of them at all?! I think policy is little more than educated…

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