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Inflation and Interest Rates

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Inflation and Interest Rates

They are telling us that inflation is now 4% and interest rates need to rise.
I have never understood the need to increase interest rates because of inflation increases. Maybe someone can explain this to me. Undecided
I've heard it said that interest rates need to rise to curb our spending. Well as far as I'm concerned price rises in the shops and at the pumps curbs my spending.
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Community Veteran
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Re: Inflation and Interest Rates

Odd isn't it, one minute they need to curb our spending and then they're moaning that we're not spending enough  Roll eyes
They're never happy with us are they. Why can't they just let us get on with it?
I need a new signature... i'm bored of the old one!
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Re: Inflation and Interest Rates

I suggest reading this very good analysis
http://good-energy.typepad.com/greenenergyrepublic/2011/01/hiking-interest-rates-not-the-answer-to-i...
Quote
News that inflation rose to an 8-month high of 3.7% in December sparked a barrage of calls for the Bank of England to increase interest rates. Somewhat misleading in my opinion, and according to my own understanding of basic economics. The BoE has an inflation target of 2% to aim at, with interest rates being the main weapon in its armoury. But the recent increases in inflation are being driven by rising food, fuel and energy prices – wheat prices have gone up due to a lack of rain followed by too much rain; energy prices are being driven by trading conditions on world energy markets; and fuel prices by underlying oil prices, weather and VAT – none of which would be affected by hiking interest rates.
To which could be added to increased cost of food driven by increased production of bio fuels
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Re: Inflation and Interest Rates

and why is the government NOT worried about the increasing price of fuel?  well the more it increases, the more VAT they collect... you can just imagine the chancellor... " I know lets just put a 1p per litre tax onto the current tax level.... not much.... nobody will complain... ".. but then they get a bigger cut on the vat too !... very crafty DOUBLE tax  by stealth...
Interest rates ?  well if interest rates are low.... then borrowing to spend is (relatively) cheap..... put up the base rate.... make borrowing to spend more expensive.... cuts borrowing ... cuts spending...
Community Veteran
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Re: Inflation and Interest Rates

Have you looked at the interest rates for a loan (not a mortgage) recently.
Increasing the interest rate by 1% will have no effect whatsoever as the lenders are currently coining it.
nadger
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Re: Inflation and Interest Rates

As one who never pays interest, and receives a pitiful return on savings, I'd welcome a hike in interest rates.
Anyone else remember the days when we were paying 15% interest on our mortgages and we somehow coped.
I agree, Jim, that interest rates have no bearing on what banks charge on loans or cards.

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Re: Inflation and Interest Rates

I'd not complain if interest rates went up.  May help on the savings a bit Wink
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Re: Inflation and Interest Rates

But do the lending companies pass on the benefits to the savers or does it simply increase their profits....or their bonuses.
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Re: Inflation and Interest Rates

Profits and bonuses..  Roll eyes
I need a new signature... i'm bored of the old one!
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Re: Inflation and Interest Rates

Borrowers are charged new rates immediately but savers generally have to wait a time before getting the benefit, and sometimes it's not passed on in full.
Coincidently I had a phone call from my bank today offering me a new product at 4%.  If they are offering that then there will be better rates around so I decided not to take them up on their offer.
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Re: Inflation and Interest Rates

Just in case you think the BOE knows what it is doing.
These are 3 month forcast for CPI charts as issued by the BOE from Feb 2009
http://ftalphaville.ft.com/blog/2011/02/16/490076/inflation-chartology/
pierre_pierre
Grafter
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Registered: 30-07-2007

Re: Inflation and Interest Rates

you will have to excuse the anti labour slant on this report, after all it was todays headline on the daily express
Quote
PENSIONERS were cheated out of £80billion during 12 years of Labour rule, it was revealed yesterday.
In a bitter blow to millions, the Bank of England’s February inflation report showed the Consumer Prices Index between 1997 and 2009 was 0.3 per cent a year higher than official figures had previously stated.
Experts say this miscalculation by the Office for National Statistics cost the average final salary pension holder hundreds of pounds a year.
Read more: http://www.express.co.uk/posts/view/229938/MILLIONS-LOSE-IN-PENSIONS-BLUNDERMILLIONS-LOSE-IN-PENSION...

but after all it was the Office of National Statistics that made the mistake
Community Veteran
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Re: Inflation and Interest Rates

The ONS is a government body staffed by civil servants.  It prepares information for various government departments.
I wonder if the government knew what was happening and decided to keep quiet. After all, Clown Brown had previous when it came to robbing pensioners out of their savings Wink Wink
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Re: Inflation and Interest Rates

I can remember back in 1978 our mortgage rate came DOWN to 12.5%, and I can also remember getting a 33% pay rise with the electricity supply industry in 1973, just before the dark days of miners' strikes. Now that's inflation.
VileReynard
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Re: Inflation and Interest Rates

Inflation is a good thing if you have a mortgage - it reduces the price of your house, provided your income keeps pace with inflation.
Those on fixed incomes lose though.