As I very confidently predicted yesterday, inflation has fallen in the UK. According to the release from the Office for National Statistics at 7 am this morning:
Main points
- The Consumer Prices Index (CPI) rose by 2.3% in the 12 months to April 2024, down from 3.2% in the 12 months to March.
- On a monthly basis, CPI rose by 0.3% in April 2024, compared with a rise of 1.2% in April 2023.
- Falling gas and electricity prices resulted in the largest downward contributions to the monthly change in CPI annual rates, while the largest, partially offsetting, upward contribution came from motor fuels, with prices rising this year but falling a year ago.
- Core CPI (excluding energy, food, alcohol and tobacco) rose by 3.9% in the 12 months to April 2024, down from 4.2% in March; the CPI goods annual rate slowed from 0.8% to negative 0.8%, while the CPI services annual rate eased slightly, from 6.0% to 5.9%.
In other words, all of the useful inflation measures fell, as was always going to be the case.
What is more, there is no reason to think that any of them will rise in any significant way, any time soon. Of course, unforeseen events might happen. But we can only plan for what we know, and that is that inflationary pressure is now back to supposedly desired levels. albeit I would actually allow them to be a little higher at maybe 3 per cent.
So, now it is time for the Bank of England to stop the charade and pretence that we need high interest rates, which has been deeply destructive. Now is the time for rapid interest rate cuts. But how much? The target should be no more than 2 per cent by the end of the year, with a first one per cent cut required now, with others to follow in rapid 0.5 per cent stages as the year progresses.
Then, we might get the economy going again.
Then, we might stop the appalling mortgage pressure on millions of households.
Then, rent controls can be discussed.
And, an incoming government would see massive cuts in its interest charges each year, by more than enough to solve many other problems in society without any need for austerity arising.
So why aren't such cuts on the horizon when it is so obvious that they are needed? Only because they do not serve the interests of the wealthy, and they are the people that this country is being run for.
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It’s not going to happen though. We dance to the FED’s tune.
No we don’t
As should be obvious
So why are interest rates so high when inflation has been clearly falling? Its the perception that if we cut rates, the Sterling will fall and we will suffer imported inflation.
I’m with you though, interest rates should be cut rapidly now – and I think they will because it may buy a few votes. And as you have alluded to elsewhere, there’s a strong case to suggest that high interest rates have actually contributed to inflation (better off folk moaning about the price of long haul flights or that they simply can’t get a seat at their favourite restaurant while having risk free money shovelled into their bank accounts…..).
Tell me why sterling will fall?
And tell me how the massive fall inflation since 2016 has made us an outlier?
Or are you simply talking unsubstantiated nonsense?
All fair points. Which leaves the open question: when will Sunak & his minions have discussions with the (independent?) BoE regarding a fall in interest rates – nicely timed such that they have an impact & sunak can say – “look, under a Tory gov the Uk is getting better”. Doubtless there will be various meetings of the “nudge nudge – wink wink” variety. My guess is Sept. Then Nov election. Where things get interesting is the bookies & when is the election: odds of 1:3 Oct- Dec seem to me to indicate a dead cert that it will happen then. Suggesting that interest rate cut – soonish.
Agreed
Dear me Mike, such cynicism. Surely you’re not suggesting that the BoE’s independence is in fact a charade?
I know the Interest rate has had little impact on the falling inflation rate, but even if we played the Bank of England game, what ever happened to the lag concept, i.e it takes six months for them to have an effect on inflation and on the way down interest rates should be cut ahead of reaching the magic 2% inflation rate.
As I was saying a year ago, at least
Absolutely correct.
Now, some may quibble whether 2 or 3 might be the correct level for base rates….. but FIVE?? It’s ridiculous. I would laugh….. but it’s no laughing matter for many.
I want net zero real rates
Yes indeed
Mosler
Proposals-for-the-Treasury.pdf (moslereconomics.com)
For Fed
3. I would make the current zero interest rate policy permanent. This minimizes cost pressures on output, including investment, and thereby helps to stabilize prices. It also minimizes rentier incomes, thereby encouraging higher labor force participation and increased real output
Friedman
https://miltonfriedman.hoover.org/internal/media/dispatcher/214916/full
Under the proposal, government expenditures would be financed entirely by either tax revenues or the creation of money, that is, the issue of non-interest-bearing securities. Government would not issue interest-bearing securities to the public; the Federal Reserve System would not operate in the open market.
Thanks
What is better for the wealth of wealthy? “Income Effect” (higher interest rates)? or “Valuation Effect” (lower interest rates)?
Could you please elaborate a little bit?
Thanks.
Both
If you do not understand the answer you do not understand arbitrage and the ability of those with wealth to exploit any situation.
Thank you.
I see, sure, wealthy individuals can exploit the opportunities (price differences) more effectively due to their access to capital, information, advanced technology etc.
Regardless, I wanted to ask the question anyway because Prof. Simon Wren-Lewis wrote in his blog yesterday that MMT supporters hold the view that wealthy people prefer higher interest rates, but he doesn’t share the view.
Best.
The ultra wealthy are indifferent to rates: they can game markets whatever happens.
Those on normal levels of wealth are deeply risk averse: they like high rates.
If Simon is not differentiating the two then we can both disagree and differ
You clearly are not following the argument
“The ultra wealthy are indifferent to rates: they can game markets whatever happens.”
This is rubbish!!!..you think the “wealthy” are fantastic investors who make money in all market conditions, you assume they are the perfect hedge fund. Well let me tell you they lose money just like the rest when property, bonds and equities fall and all are negatively correlated with interest rates..unquestionably anyone with any assets (wealth) want low not high interest rates
All those private offices and wealth managers do not, of course , do anything for these people.
Do you really think we are stupid enough to believe that?
And how you not noticed how wealth has increased heavily with high interest rates?
“you do not understand arbitrage”
Could you please explain how investors can “arbitrage” so they can benefit from both high rates and low rates? They could of course have exceptional market timing to move back and forth between risk and non risk assets but those with exceptional market timing are few and fair between given that markets discount events so far in adavance. Arbitrage is “risk less” . Falling rates cause asset price hikes and ice versa. Wealth goes up when rates fall and this is what the wealthy want, 100% ..
You clearly know the answer to the question, so I won’t waste my time answering it
Core inflation still above target as you state in your piece, and it was above expectation at 3.9% compared to forecasts of 3.6%. There is a long way to go yet and I’d be leaving interest rates at normal levels for the time being myself.
We also have April’s government spending increases to work through the system.
Tell me what you think is going to happen? The Bank of England think we are in for a long period of low inflation, and given that these rates are always broadly the same worldwide and never local – at least as far as coutries like the UK are concerned – what is it that you think justifies high rates here?
Rates here are not really high. They’re roughly mid-range for central banks anal historically.
The BoE are not predicting a long period of low inflation. They are predicting inflation to fall within their target range for a longer period. So I don’t understand what it is a) you are claiming and b) you are asking.
The question is not historic – it’s about what is needed. If you don’t get that you wholly miss the point.
And yes they are predicting very low inflation – because that is what their target is.
Do I am claiming rates will be far too high for the well-being of the economy and why you disagree, which is a question that appears to be beyond your comprehension
Russ Meyer – not the name of a footballer or a boxer used this time, but a noted director of ‘sexploitation’ movies back in the day. As usual, he/she is being a real boob in their posts.
As for the topic itself, the Graun is reporting, “UK inflation falls by less than expected to 2.3%, reducing chance of June rate cut”. Obviously, inflation collapsing to 2% below the level of the interest rate isn’t considered significant by them? Do we need to wait for it to fall further to 3 or 4% below before we get a 0.25% cut in rates?
Full disclosure – I must admit that I’ve got an interest in rates falling as my very low fixed-term mortgage rate ends early next year and I’d rather pay as little as possible when I look for a new deal then! I only wish I’d fixed it for a decade…
At least a good chunk of the value of the loan has inflated away regardless, I suppose.
Thanks
He is now blocked
I see the narrative being pushed by MSM is “Interest rate cut blow as inflation drops less than expected” (Sky News).
Quite absurd….
I said it was the perception, I didn’t say it was my view.
Stop being such a nasty little cunt.
Well, that’s a way to get yourself banned