The FT has an article today that is headlined as follows:
In those five words we have the reason for the neoliberal obsession with inflation: it eats away at wealth.
The article itself begins by saying:
A million dollars ain't what it used to be. With inflation biting into the pockets — and trust funds — of even the very rich, few people can ignore the effects of rising prices.
Then it notes:
Of course, the pain is very unevenly shared, with poorer people bearing the brunt. But, even at the top of the wealth pile, the impact is clear.
What is really interesting is how wrong that claim could be.
It is true that for those on low fixed incomes, inflation is a major issue. Most of them are elderly, Reform of old age benefits could address that issue.
If wages were not just allowed but encouraged to rise in line with inflation, then most of the rest of the claim that poorer people suffer the brunt would fall away.
As it stands, the poorest only suffer the most because interest rate rises are designed to punish them, pay rises are inadequate, and so too are some benefit increases.
Inflation punishes poorer people by design.
Who does the design? Wealthier people do.
Why do they design things as they are? To make sure that wealth disparities are maintained despite inflation. That, I suggest, is why.
But what is true is that wealth is always harmed by inflation. That is the only reason it is an economic priority when seriously disruptive inflation is a virtually unknown economic problem.
It really is time we recalibrated our economic priorities. The world would be a much better place if we did.
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Pension Credit for the lowest income pensioners really should be uprated with inflation every year.
Agreed
And it should be consideably more flexible
Like a gymnast with a choice of events, some which she is good at, able to drop others, for the best all round total
Theoretically pension credit is uprated annually by way of what is called “the appropriate amount”. But there is not, as far as I can make out, any formula for calculating it and it seems to be a figure plucked out of a hat. At least it isn’t frozen like tax free thresholds. More knowledegable contributors (PSR?) might be able to enlighten me.
Pension credit is uprated every year, in line with the pension increase. However it is set too low.
No pensioner should have a pension so small that they need to claim pension credit.
If an MP can have a pay rise of £2000 a year, why can’t everybody else.
Go North East bus drivers are going on indefinite strike from tomorrow because they have been offered a pay rise of 10.3% which takes their pay up to £14.15 an hour. Go North West already get £15.53 an hour, so why the difference? For an extra £55 a week per driver the manager is risking the economy of the whole area.
There are villages here that have no other form of transport. It will be like covid lockdown all over again, with kids not being able to get to school, and no buses to any of the hospitals until Christmas.
The same man runs both Go North East and North West , so why does he think it’s okay to treat people differently for the same job?
Excellent question
Inflation harms everyone with any savings and everyone, especially low income families by making all goods and services more expensive. There is nothing positive about inflation that’s why the eradication is so important.
So untrue
Some inflation is positively beneficial to an economy
“Some inflation is positively beneficial to an economy”
Not at the levels we have faced. We have seen financial hardship and a loss of productivity through industrial action.
If benefits and wages had been allowed to rise to match and interest rates had not been raised as they clearly do not work to control infaltion what harm would have been done? Please spell it out, precisely.
“If benefits and wages had been allowed to rise to match and interest rates had not been raised as they clearly do not work to control infaltion what harm would have been done? Please spell it out, precisely.”
The economics of Venezuela and Turkey… take a look for yourself.
I presumed you would not know, and you very obviously do not.
If all tax thresholds, benefits & minimum wages were uprated in line with inflation, only the savings of the poorest would be affected.
And let’s be honest, after 14 years of austerity, only the not-at-all-poor have much in the way of savings to worry about.
On the other hand we could really do with some effective windfall taxes – perhaps we could set inflation-related thresholds on cash increases in distributed company profits & bonuses – which would incentivise investment in a helpful way.
A windfall tax on what?
It surely undermines everyone’s value of their stored monetary wealth. That is why the ultra wealthy store their long term wealth in something other than money. I can imagine a transfer of wealth from the the merely rich to the ultra wealthy. Warren Buffet has spoken of this connection multiple times. Inflation reduces the real price of financial assets and if you are merely rich and have over exposed your financial position or suffered from financial stress and emotion; you might be led to sell assets when they are undervalued. Many who are rich invest money thinking that they know about finance. Often it is the case they are too emotional about finance and should not involve themselves with it. The ultra wealthy are not as constrained and will hover up all these undervalued assets. When the inflation period is over and asset prices return to where they once were; then we would observe that a wealth transfer has taken place. And Warren Buffet gets to add some extra 00s to his wealth index.
You pick up an aspect of this
What about some sort of ‘inflation proofed’ savings vehicle that anyone could have but where the amount you could save was limited such as SAYE or Help to Save so everyone could have a limited amount of inflation proofed savings?
Indexed linked bonds provide that – bit are hard to access
I have some thoughts on this (hinted at in prior comments). When I get home from my travels (family gatherings) I might expand on them….
Please…
As we know, central banks blunt answer to inflation is interest rate rises – regardless of the cause. The current bout being due, as we all know (& a replaye of the 1970s) to energy price rises due to war (gosh a double snap!).
This article was pathetic in terms of the question raised and the failure to answer.
https://www.marketscreener.com/news/latest/There-s-something-wrong-with-corporate-results-45169755/
Siemens makes capital equipment – high interest rates reduce demand for capital equipment & thus employment. Thus the ECB favours people being unemployed. Twas ever thus, keep the poor/slaves in line using toy-town economic theories that even the practitioners don’t believe (& if they do – they are too stupid for the positions they occupy – but that said – & in fairness the only selection critieria for such positions is a) does your face fit, b) are you a safe pair of hands?)
Yes but Richard Werner has done same analysis of the numbers and links it to an increase in (non government) bank credit creation (for non-productive purposes) enabled by the central banks 18 months before it started… and similarly with the 1970s “oil shock”
see
https://youtu.be/GTaiqTUs18c?t=267
https://fortune.com/2023/03/20/is-federal-reserve-too-powerful-inflation-quantitative-easing-richard-werner/
No doubt it was continued and made worse by the central bank interest interest rate increases, energy price hikes feeding through economy, and industrialists improving their margins but it started with central bank policy increasing credit creation.
Sorry – but that’s the same as saying the economy should have gone to the wall during Covid.
Let’s call it cloud indifference to reality shall we?
Werner might have created QE, but there is a reason why he has almost no impact.
Your suggestion is a thoroughly robust one.
But inflation is the friend of those who have substantial assets financed mostly by debt because not only does it devalue their debt, the attendant high interest rates also keep the workers in hock. Deflation on the other hand increases the real value of debt so inflation it has to be. Some might say the more the merrier.
That is pretty simplistic
I recently viewed a series of talks on central banks, which I largely agree with.
We have to agree that the de facto central bank is the federal reserve. So I think something like 97% of central banks match the federal reserve interest rate. It’s nice to think we have some sort of autonomy with our economy, but we don’t.
The simple fact is, If US interest rates were at 5% and ours at 1%, the amount of capital flight out of this country would be unreal. Let’s be honest, it’s about maintaining the value of sterling vs the dollar, it’s wealth preservation, let’s just call it like it is.
Just for citation:
https://www.youtube.com/watch?v=jKL2prhZIMY
You confuse hot money with capital
They are not the same thing, at all
Nor are the rates the same
I’m inclined to agree with Stuart if for slightly different reasons, unless you want to explain what “hot money” is, which is not a term with which I am familiar, and isn’t in your glossary. I have long thought that matching interest rates with the Fed is all about exchange rate mainenance. Okay, it makes our exports more expensive, but a large part of our imports is oil which is priced in US dollars.
Hot money is the relatively small amount of highly volatile money that will move at short notice for maximum return.
We know that this money exists. It is what traders create and use for margin trading, and the like. Its quantity exceeds what is required for normal trading. It is also, quite often, the money that moves into and out of tax havens at short notice. It is, consequently, what also tends to set the price for money, because what is traded is priced, and what is not traded is unpriced. It does not, however, reflect market reality. In the short term, it can be disruptive. Once the disruption as happened, and that is quite quick, substance, replaces it. Rates would not then move nearly as much as you think because international exchange rates are not set by money markets: they are set by the relative value of goods and services traded.
Thanks. Never heard of that. Looks like a whole new subject for me to research. There’s quite a lot on Investopedia.