Tuesday, May 01, 2007

Three Strikes and Out / PIMCO on UK CPInflation

the only reason the mpc has to ease at the end of the year is the coming crises in housing.... click on the headline if you want read the rest.

der einzige grund warum die boe ende des jahres evtl. die zinsen senken könnte wird das platzen der immobilienblase sein. bitte auf die überschrift klicken um den rest zu lesen.

Over the last year the Consumer Price Index has risen from 1.8% to 3.1%, although excluding the volatile food and energy components the increase has been a more modest 0.6% (from 1.3% to 1.9%).

>they should have talkes to the fed how to "dampen" cpi....
>hätten sie bloss die fed gefragt wie man sich den cpi schönrechnen kann.......

here is more on the individual calculation of inflation from tim http://tinyurl.com/2zx44g

Allison Lauder, a 32 year old solicitor had a calculated personal inflation rate of 7.4 per cent versus the ONS figure of 4.4 percent. John Yates, age 77 and retired, registered 7.5 per cent versus the ONS's estimate of 3.9 per cent. And Niki Chesworth, a 44 year old freelance journalist and her partner, Guy, a 45 year old engineer, posted a personal inflation rate of 8.7 per cent, double the figure from the ONS.

So does the MPC have a problem or not? Price expectations suggest cause for concern, and indeed the MPC is worried. Pricing expectations for firms are at multi-year highs and consumer- and market-implied inflation expectations all suggest that the MPC’s credibility is on the line.

As chart 1 shows, manufacturers’ price expectations correlate well with actual output prices – i.e., expectations explain current prices coming from manufacturers, not future prices. So if they are coincident with prices of products coming off the factory floor, how do these price expectations compare with prices on the high street?

However the forward indicators, most notably wages and input prices, suggest this latest blip in inflation is relatively transitory and will pass. If that is the case, the second half of the year should see inflation ease and expectations fall, allowing the MPC to refocus on aggregate demand. With the impact of the MPC’s cumulative interest rate hikes likely to come through over the second half of the year, we could be faced with falling inflation and falling growth rather than rising inflation and respectable growth. In that environment the MPC’s management of aggregate demand would imply that the year would end with monetary policy moving toward supporting rather than restraining growth. In that environment the outlook for the bond markets should be much better, and two and five year bonds, with the greatest sensitivity to the MPC’s rate decisions, should be the prime beneficiaries of a policy reversal.

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