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.

yea, there was a thread on askaboutmoney site on inflation recently and the moderators basically closed it down . They took exception to the argument that the CSO were deliberately not counting inflation properly.

If inflation is fully counted well then the ECB has to tame it by raising interest rates, however all the governments are addicted to this cheap money and now they have signed up to massive spending programs got to do with the "green transition" and all that COP26 stuff. Therefore if the ECB raise interest rates they will derail all that stuff, the great game is to pretend that inflation is not happening or is "transitionary"

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

Well, that's grand for you and those like you. But it is not sustainable for the vast majority of the community you have to share your actual day to day existence with, and that unsustainability will end up affecting you to go with it in the long run. It's fine for those in government who are in a gold plated gated position to ignore it.

"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.

Ahh look man its pointless trying to talk to you as you can't see the bigger picture of this wild inflation increase. You are only concerned with yourself and your immediate situation, which at this current moment you believe it will benefit you in the long run. It won't because the widespread inflation rate is going to create widespread problems for the outside community that you have to inhabit this country with. It's going to create widespread problems, increasing numbers of crime for example, and who will have to pay for that along with everything else? It's going to be the likes of me and you, including your savings.

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

The "green transition" cuts to agricultural production and the rise in demand for metals like copper and aluminium (10 times as much as conventional power systems) is going to drive this inflation for years to come. When food prices really start rising people will get very angry. Very high rates of inflation could scupper the whole "green transition" as people revert to traditional fuel and farmers produce food for the black market like used to happen in Eastern Europe during Communism

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.

So at what point do we start burning 50 euro notes in the fireplace to keep warm over winter?

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)