Inflation thread.

But governments would want a level of inflation. Just not too high. Inflation gives an incentive to spend and invest and is a great social leveller over time. Personally I'd rather not have any at the minute as I have savings sitting there doing nothing (I need them liquid while I'm waiting for something to come up to invest them)

What would you think a "total level of disaster" is? We'd be a fair bit away from that at the minute.

A lot of the inflation that we are seeing around the world is due to:

• the increase in Government fiscal spending to deal with Covid.
• Shortages in the supply chain (The shortage of chips in the car industry has accounted for 1.25% of the 6.2% inflation in the USA)
• People spending savings that accumulated during Covid.
• The increase in Energy costs as economies around the world turn to using greener energy supplies

These should all abate over time with the exception of Energy costs.

There would be a fair degree of elasticity to much of what people spend on nowadays. The big issue in Ireland is rent costs. Energy will be a problem too as that would be fairly unelastic.

If I was a government, I'd be happy for there to be reasonably high inflation (plus some increasing rates) to reduce all my debt obligations on a real basis

"Those like you" - I already said I don't want inflation as I have money sitting there while I am waiting on something specific to come up. Inflation affects those with no money less and is great from those with debts.

Any entity with already issued debt would be happy with increasing (interest) rates. I worked in fixed income for a good few years. When the levels go up, it helps the books as the value of what you have to repay goes down on paper. That's on paper. Where inflation comes in it means that it is easier to repay what you owe.

Let me explain it to you this way with a simple example for inflation. You get a loan of 80k today. You have to pay back 100k in a lump repayment in 10 years time. You get your money, buy your house. Which scenario would you prefer:

1) Inflation goes up to 10% y-o-y

2) Inflation stays at 0% for the entire period.

Which part of "I don't want inflation" gave you the impression that I want inflation? Sorry if it was ambiguous.

It hasn’t really trickled down to the average man on the street yet apart from their energy bills but it’s coming like a tsunami

staggering increase in the prices of materials in the last six months

Yes. I didn't mean it literally. When people whose food expenditure etc. is a large proportion of their money then of course it hits them much more and can push them beyond limits.

I was kind of referring to me now vs. me starting out with nothing but full career ahead of me. I don't mean the global poor struggling to eat. A 22 year old Irish graduate who might struggle more for the next few years while they get their career off the ground, would probably be better off (relatively speaking) if inflation was higher.

Think of the people in the 80's. High inflation and high interest rates. Those that could get credit bought houses for relatively very little. High rates at the start of course but by the time they hit the mid 90's their annual salary was probably greater than the mortgage they took out.

That's the point. The reason your house appears much more expensive is that most people buy houses with debt. Because interest rates are low, repayments are low and so people can afford to pay more. So it is really the affordability of repayments that matter rather than the notional amount.

If interest rates increase by a decent amount (I'm talking about all rates, but even those at the short end), house prices will inevitably reduce. If you are buying in those conditions (lower prices and higher rates) and then the rates go down over time, you are left with the scenario where you owe less than you otherwise would have nd are now paying a lower rate on it. The people I mentioned who bought in the 80's and were lifted up by the 90's were in that position. They were better off 15 years into their mortgage than someone who bought in 2006 would be today. So if you were to pick a starting point for yourself, would you want to pick 1985 or 2005? (I mean only in terms of making that big investment of a house)

As the other poster said wind and solar are material more intensive. Cost of generation is a very different measure than material and land costs. It is in land that you see a stark difference. Fossil fuel power stations are hundreds of times less land hungry.

Very much a novice here...but, does the asset inflation not inevitably lead people to see their money as being less valuable due to it having less purchasing power and therefore necessitate them demanding more compensation for whatever product or service they provide?...leading ultimately to the CPI being affected...so therefore if the effects on the CPI are limited then that may not last?...isnt it all linked ultimately...why consider it in isolation as if one part wont affect/bleed into another?

I am probably not explaining myself very well but say I'm Joe Business Man and I supply some sort of service or product but I use the earnings/profits from my business to invest in assets (not necessarily within the business) and last year I could buy ten units of that asset for 10k, this year I go out to buy that asset and I need 15k to buy the same 10 units of that asset....isnt that going to cause me to want to try lever up the price of my product or service too? maybe just as much as the fact that my energy prices etc went up...

I mean I can see that the cost of whatever raw materials and energy that go into producing or providing may be the most immediate motivation to lever up my prices to preserve my profit margin but if I'm investing at all (either within or outside the business...and this could be pension, stocks/shares, physical assets) and I see my purchasing power declining quite dramatically does this not cause me to try find any way I can to increase prices as the the money I'm getting in the other end buys much less of what I want? Would that not ultimately mean that QE will impact the CPI if it hasn't already

I'm aware it was always my gut feeling that QE was a disastrous idea so I could just be inventing a justification for my dislike I suppose

...so can you explain how irish banks are now holding record high deposits?