[Politics] Cost of Living Crisis

[hampshirebrightonboy]

Can someone explain to me how raising interest rates is going to bring down inflation when the main factors are the increase in gas, electricity and petrol prices.
How is raising interest rates going to bring those prices down?

 

[Machiavelli]

Can someone explain to me how raising interest rates is going to bring down inflation when the main factors are the increase in gas, electricity and petrol prices.
How is raising interest rates going to bring those prices down?

They won't bring the prices down themselves, because they're not specifically targeting them. What it means is that mortgage (and other loan) holders will be paying back more on their mortgages/loans which, in turn, means that they'll have less money to spend on other things, which dampens demand.

 

[WATFORD zero]

Can someone explain to me how raising interest rates is going to bring down inflation when the main factors are the increase in gas, electricity and petrol prices.
How is raising interest rates going to bring those prices down?

Here is a good explanation https://www.thetimes.co.uk/money-mentor/article/inflation-interest-rates/

*edit*

Or you could read the somewhat more succinct post above

 

[hampshirebrightonboy]

They won't bring the prices down themselves, because they're not specifically targeting them. What it means is that mortgage (and other loan) holders will be paying back more on their mortgages/loans which, in turn, means that they'll have less money to spend on other things, which dampens demand.

But surely these prices shooting up will do exactly that. If you have to spend a few hundred pounds a year more on energy you have less for other things

 

[Machiavelli]

But surely these prices shooting up will do exactly that. If you have to spend a few hundred pounds a year more on energy you have less for other things

Good logic and I'm not an economist (who might have a better response), but will still reiterate a point made previously: interest rates are used to tackle inflation in general (and not specific to, for instance, energy prices). What the increase in energy prices will do is dampen demand for energy (because it's more expensive) although note there's a difference between essential products (most would include energy in there) and luxuries. I think what interest rate rises do is dampen the overall demand in the non-mortgage sectors (ie the overwhelming majority of the economy).

 

[hampshirebrightonboy]

Good logic and I'm not an economist (who might have a better response), but will still reiterate a point made previously: interest rates are used to tackle inflation in general (and not specific to, for instance, energy prices). What the increase in energy prices will do is dampen demand for energy (because it's more expensive) although note there's a difference between essential products (most would include energy in there) and luxuries. I think what interest rate rises do is dampen the overall demand in the non-mortgage sectors (ie the overwhelming majority of the economy).

I could understand if the economy was overheating and people were driving up prices on goods like clothes or cars etc but that is not what is happening. The global price of energy is going up.

 

[cunning fergus]

How free can RadioFreeEurope be if it's funded by the US Congress?

I'll pass, thanks.

Seek and ye shall find……no doubt more to your taste.

https://www.bbc.co.uk/blogs/nickrobinson/2008/10/the_corfu_story.html

A Senior Tory MP, a Senior Labour MP, an ex EU Trade Commissioner, a Russian Oligarch, Rupert Murdoch and a member of the Rothschilds………all on a yacht together, what could possibly go wrong?

 

[cunning fergus]

I said reduced not removed.

Sounds like you lack ambition.

I think VAT on energy should be removed completely, you want it reduced.

What I want can’t be achieved in the EU.

 

[Thunder Bolt]

Sounds like you lack ambition.

I think VAT on energy should be removed completely, you want it reduced.

What I want can’t be achieved in the EU.

You make assumptions.

Incidentally Shell has made £19,000,000,000 profits and our government has refused to implement a windfall tax.

 

[WATFORD zero]

How free can RadioFreeEurope be if it's funded by the US Congress?

I'll pass, thanks.

Seek and ye shall find……no doubt more to your taste.

https://www.bbc.co.uk/blogs/nickrobinson/2008/10/the_corfu_story.html

A Senior Tory MP, a Senior Labour MP, an ex EU Trade Commissioner, a Russian Oligarch, Rupert Murdoch and a member of the Rothschilds………all on a yacht together, what could possibly go wrong?

Of course, if you don't have an answer, you could try a bit of whataboutism ..... oh

Sounds like you lack ambition.

I think VAT on energy should be removed completely, you want it reduced.

What I want can’t be achieved in the EU.

And it sounds like you lack discernment

As what you want to achieve very apparently won't be achieved outside of the EU and was never going to be, no matter how much you love Johnson

 

[RexCathedra]

Can someone explain to me how raising interest rates is going to bring down inflation when the main factors are the increase in gas, electricity and petrol prices.
How is raising interest rates going to bring those prices down?

Raising interest rates will make it more expensive to borrow.

Firms will be reluctant to borrow to produce, buy materials and other inputs, machinery, staff up etc.

Employees won't be be buying as much, too. Because firms have deferred producing, buying inputs, machinery, etc. and especially staffing up.

Consumers won't borrow to buy stuff, thus decreasing demand, allowing firms to defer producing, buying inputs, machinery, staffing up, etc.

Eventually everyone will be broke, or a little bit closer to broke, with less to spend, as the economy slowly downshifts through the gears towards stopping completely.

Which will lower inflation. Did you know the UK experienced serious deflation in the early '20's and again in the early '30's? And those were wonderful times.

It's all very Heath Robinson, which is what John Maynard Keynes pointed out almost ninety ever-loving years ago.

 

[Machiavelli]

I could understand if the economy was overheating and people were driving up prices on goods like clothes or cars etc but that is not what is happening. The global price of energy is going up.

On that, I'd ask for evidence, as cars (particularly second-hand) have gone up considerably in price due to the problems with the supply chain. Ditto food. Less clear on clothes.
Yes, the market price for energy has increased, but it's higher here for a range of reasons, one of which is over the last decade or so, storage facilities for gas have been dramatically reduced.

 

[rigton70]

I find this amazing! We don't buy any brands at all.
All the basics have gone up hugely, like a bag of rice has gone from ~30p to ~80p.
Pasta from £1 for 3 packs to 60p for 1 pack.
Butter from 60p to £1.50

We have now cut down massively on luxury stuff, so we're not spending so much more, but getting a lot less stuff.



It really hasn't - I can only think you're all buying ready meals, which have apparently not increased much at all.

You need to shop elsewhere.

 

[hampshirebrightonboy]

On that, I'd ask for evidence, as cars (particularly second-hand) have gone up considerably in price due to the problems with the supply chain. Ditto food. Less clear on clothes.
Yes, the market price for energy has increased, but it's higher here for a range of reasons, one of which is over the last decade or so, storage facilities for gas have been dramatically reduced.

Yes cars was a bad example. The whole market is totally messed up due to the shortage of semiconductors. I suppose what I’m trying to say is that inflation is not rising due to consumer demand but something outside of our control on things we have to buy. We are all going to be poorer when the energy prices rise reducing demand without the need for an increase in mortgage payments. I’m not looking forward to it. Chance of a pay rise at my place is very low. I will have a lot less money to spend.

 

[beorhthelm]

Can someone explain to me how raising interest rates is going to bring down inflation when the main factors are the increase in gas, electricity and petrol prices.
How is raising interest rates going to bring those prices down?

it will remain to be seen if they do. the inflation is largly due to supply shortages running on from covid, rather than outright demand. interest rates are a crude tool for inflation but about the only one there is and better than doing nothing.

 

[Blue3]

private companies are merely a conduit. point is we have 10x the population, ~10x the consumption. we simply couldnt have amassed similar fund unless we exported it all as Norway did.

Assuming the uk held the ownership of its oil and gas and sold its products to the consumers of the uk for a profit and some of that was invested with 10 times the population that fund would be several trillions large

 

[Blue3]

To start putting things right we need to look at the route cause of this country’s problems and in my opinion is our political system is broken first past the post no longer works, short term government only planning for the next election, less than 10% of seats decide who will be the winner, the winner takes all completely ignoring any view that’s different from their own.

 

[Swansman]

The toolbox is empty, need a new economical system. Cant see it happening until the full (inevitable) collapse of the current fiat nonsense.

 

[nicko31]

Meanwhile the French government is forcing EDF to take a 8.4bn euro hit with energy bill caps. Amazing what you can achieve when you don't sell everything off to the private sector.

We'll be burning unused PPE to keep warm instead

 

[BBassic]

Seek and ye shall find……no doubt more to your taste.

https://www.bbc.co.uk/blogs/nickrobinson/2008/10/the_corfu_story.html

A Senior Tory MP, a Senior Labour MP, an ex EU Trade Commissioner, a Russian Oligarch, Rupert Murdoch and a member of the Rothschilds………all on a yacht together, what could possibly go wrong?

I do enjoy the BBC actually yeah, thanks.