Posted on 08/05/2015 6:10:02 AM PDT by expat_panama
LONDON (Reuters) - Americans and Britons bracing for their first interest rate rises in almost a decade are puzzled: why are rates about to go up when there's no inflation?
Both the Federal Reserve and Bank of England are proclaiming that they are on the cusp of raising interest rates for the first time in almost a decade. It may take a few months, but the message they are sending still heavily-indebted households either side of the Atlantic is clear: 'be warned'.
It's not hard to see why near-zero interest rates should be 'normalized' when you do a quick economic health check.
After years in the post-credit crisis doldrums, both economies are now growing at brisk annual clips of between 2 and 3 percent. Jobless rates are near long-term averages of less than 6 percent. Real estate and financial asset prices have raced higher over the past couple of years.
The problem is that annual consumer price inflation rates are zero in Britain and just 0.1 percent stateside, far below the 2 percent consumer price growth targets both have committed to in one form or another as a policy guide.
Even the Fed's favored inflation measure - the index of personal consumption expenditures (PCE) - is running as low as an annual 0.3 percent.
The policy mantra for much of the year has been that headline inflation was artificially depressed by the collapse of energy and raw materials prices in late 2014. Once these stabilized - as they did through the spring - then the assumption was these base effects would wash out of CPI indexes and reveal far livelier 'core', largely domestically driven, price rises pushing headline inflation back toward its target.
In other words, central banks would face down what they saw as a temporary drop...
(Excerpt) Read more at finance.yahoo.com ...
We have significant inflation. Also: there isn’t going to be a meaningful rate hike.
No inflation? That’s Yahoo ‘news’ for you.
Huh. S&P posted another distribution day yesterday (down a couple tenths in slightly higher volume) bringing its count up to 7. Metals continue sagging and today's futures see more sagging metals (-0.22%) but with soaring stocks (+0.79%!!!!). On top of that ---
7:00 AM MBA Mortgage Index
8:15 AM ADP Employment Change
8:30 AM Trade Balance
10:00 AM ISM Services
10:30 AM Crude Inventories
Economists Say Inflation Is Tame; Consumers Aren't Buying It
Gas prices HAVE gone down, but grocery prices are way up. And I’ll bet Americans spend a lot more on groceries than gas. And, of course, rents & property taxes continue to increase.
We have significant inflation.
Right. No hard numbers for general prices but plenty of feeeelings. In the mean time the Fed's prime mandate is stable prices, and a rate hike on top of zilch measured general prices is (like the article says) is friggin' hard to explain.
Take a walk past the beef section of the supermarket. That’s about all I can afford to do, is walk past it.
“...Why are rates about to go up when there’s no inflation?”
HA! One of those lies along the lines of, ‘I’ll ALWAYS be faithful to you, Darling!” or, “No, those jeans don’t make your butt look big,” LOL!
No inflation? Yep. Sure. Whatever. ;)
when there’s no inflation?
Yahoo still having elementary school kids writing their financial articles I see.
All that is happening is that the CPI gets "refined" each year to discover "greater value" in products that are rising in price.
How this applies to Hershey bar I'm at a loss to explain. But it works for iPhones, internet connections, automobiles and such.
And, if you actually go to restaurants or grocery stores you know the zero inflation story is total crap.
Where prices have not risen on many products, product reduction has occurred. The size/weight has decreased while the price stayed the same.
Exactly. Things are a LOT more expensive than before. They just make up statistics to suit them, don't they?
The main thing I see is the price of groceries going up. Gas is down and in our area property taxes are down and just went down again. The price of real estate is cheap.
I think we are in a deflationary cycle. With 7 years of stimulous stimulous stimulous, print, print, print we should be in hyper inflation by now. We are not.
If they raise rates watch the stock market tank. Then they will have to lower again. I’ll be shocked if the Fed actually does it.
Your personal inflation is not reported in the manupulated govt numbers. If you are a stock purchaser, prices have risen dramatically.
Gas is up from its low in 2007-2009.
Anyone who believes there is no inflation haven’t watched their utility or grocery bills for the last 7 years, live in their parents basement or are so rich that they have “people” to take care of that for them.
Yes but at $2.33 in Atlanta its not prohibitive.
If the Fed raises rates look for the small housing market to die. Look for the stock market to slide. It will all be bad.
Not to mention wait til the end of the month when they have to revise the 2.3% GDP back to something like .05%.
The price of wide screen TV’s has been in free fall for years. The same goes for fashion apparel. And natural gas. And on and on.
The Denver housing market is booming especially as rents rise.
Have you bought a half gallon of Breyer’s Vanilla ice cream lately?
The price is the same but the container is no longer a half gallon size. Guess which way the container volume went - smaller or larger? See, that was easy wasn’t it.
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