High borrowing, low interest rates, supply-chain issues, irresponsible fiscal policies by the government, labour shortages and "quantitative easing" are possible candidates. Plus out-of-control inflation.
I think the energy prices situation is going to be far worse in most of Europe than in the USA, but this winter is going to suck as far as heating bills go.
We'll probably see rebate checks go out, or at least programs to give money to low-income families for their bills, but they probably won't send those out until February or so.
People are going to be wishing for global warming at that point.
Just giving cash to everyone would be simpler and better, since you could spend it on jumpers rather than fossil fuels if you wanted to, but subsidies for buying fossil fuels are mysteriously popular with governments that don't like subsidies in general.
> People in Germany are already clearing out electric heaters and it’s record hot outside…
That will also be fun. I just made a new electricity contract, from 0.26€/kWh for my current one, it will be 0.42€/kWh and that price is only because I changed to a 24 months contract (gambling prices won’t fall in a year).
I guess it’s better than freezing, but those heaters will be expensive.
Just about everything is predicted by someone at some point. Once an event takes place it's very easy to look back and pick out the people who were right.
I think no one listened to predictions what entering to economic warfare would entail. And actually thinking that even if Russia would end losing would they still keep delivering the cheap energy...
It doesn't work like that. There was public intelligence mid summer last year and we were running transports full of weapons to Ukraine back in December. This was all over paid up commercial intelligence feeds that investment companies have access to. You'd have thought they would have the same info at hand. It was damn obvious where we were heading.
Same as the rise of Covid 19 was reported as far back as November 2019 on the same feeds.
The problem is no one competent is at the wheel and the default policy is keep the spice flowing and hope the fuck the problem goes away and when everything goes to crap, blame it on "external factors" or something.
Edit: I think really it's "politically inconvenient" to have issues at some times so they hide them.
Imagine if the govts of the world had mandate to transparently and efficiently find and squash issues before a complaint, like we wouldn't freak out when we only see strong intervention without the precursing issue.
What kind of feeds are you talking about? Surely the problem is that there are many things implied by the feeds and only a fraction of them come to pass?
We get intelligence feeds from various companies. I can't name them as we are under NDA but it's an aggregation of news, real data, analytics to build credible views of things that are going on and where they are likely to go. We have an internal analytics team who apply this to organisational risk and syndicate it out to whoever needs it. They are surprisingly accurate.
It is not invasion itself, but Europe's response to stand up for Ukraine. Former had certain level of uncertainty, but latter was fully conscious decision and amount and depth of it is entirely under control.
It has little to do with Ukraine, though that exacerbated it. Energy and commodity prices were heading up long long before Ukraine invasion. Russia is still selling its oil to India and China, and oil is somewhat fungible of a commodity.
At least in the UK, they were realistic and honest about it and not immediately hiding with spin doctors and releasing reality distortion spells onto the general public unlike in other places.
And no, it is not early days and the cheap money is all gone, thus all companies funded with 98% of VC money and having little to no revenue in return for years, cannot hide and aren't going to survive that long, especially in a recession.
>Inflationary pressures in the United Kingdom and the rest of Europe have intensified significantly since the May Monetary Policy Report and the MPC’s previous meeting. That largely reflects a near doubling in wholesale gas prices since May, owing to Russia’s restriction of gas supplies to Europe and the risk of further curbs.
I'm not an economist, but another comment has already expressed skepticism over that claim.
>t least in the UK, they were realistic and honest about it and not immediately hiding with spin doctors and releasing reality distortion spells onto the general public unlike in other places.
The reason the US I presume you're talking about is hiding it and pretending it's not happening is because things are about to get way worse and you'll be begging for what prices are right now in a few months.
They'll only play those cards when it gets as bad as they're anticipating.
> in the UK, they were realistic and honest about it
The UK government is anything but "realistic and honest" about all the forces at work; they are collectively still in deep denial about the impact of Brexit.
The inflationary forces have been at work long before Brexit.
Everybody is "quiet" because they all did it (printing money and pretending the bond and market belong in the same phrase) - especially the EU (which still has 0% interest rate, BTW).
Sure, and the UK will suffer more than the others by adding Brexit on top of what "everybody" is experiencing. And they are not realistic and honest about it.
Can you really forecast inflation? They failed to do so before the whole Russia shit-storm, and they're trying to yet again.
It seems to make more sense to base economic policy on finding choke points and vulnerabilities, and addressing them before they get triggered. Wars from without are unpredictable, but you can prepare for the disruption from within. Economic forecasts by contrast seem like soothsaying.
> Can you really forecast inflation? They failed to do so before the whole Russia shit-storm, and they're trying to yet again.
The primary reason they failed was BECAUSE of the Russia shit storm. Predictions about anything are vulnerable to change from new information. That doesn't mean making predictions is a bad idea. It's still the best model you've got.
> Predictions about anything are vulnerable to change from new information.
The problem with predictions is that an event might be 99% likely to happen, but it might still be prudent to consider the 1% of cases where it doesn't happen if that's sufficiently high impact.
Considering a 1% event doesn't mean the best course of action still isn't to assume the 99% is going to happen. If there's a 1% chance of rain, the expected value of amount of rain is "a little bit of rain" but the forecast is still most usefully described as "no rain".
The point is that the magnitude of the outcome needs to be considered. Forecasting is about finding high probability outcomes, while not considering high-magnitude but unlikely outcomes. This makes forecasting sometimes a questionable activity.
How should the Fed adjust it's policies based on the San Andreas fault, solar storms flaring up electrical wires globally, China invading Taiwan, the Zaporizhzhia nuclear plant in Ukraine suffering a meltdown, a deadly covid resurgence, or zombies?
Forecasting is always a questionable activity. All models are wrong, some are useful.
I don't know how serious these things are, but if the San Andreas fault can tens of thousands of people (I doubt it, but I haven't looked into it), then indeed this becomes the priority. Economic policy should indeed focus on trying to prevent this outcome. And if solar flares can cause a megadeath (and again, I don't know), then this becomes a priority too. Your attempt at proof by contradiction might be a list of things to prepare for.
> All models are wrong, some are useful.
A forecast that causes you to act overconfidently is worse than no forecast. All models are wrong, but some are worse than nothing.
> Your attempt at proof by contradiction might be a list of things to prepare for.
It's not a proof by contradiction. It's showing that there are many long tail risks that are potentially very dangerous but also very expensive to try and prevent. It's not wrong, it's just a really difficult concept. The Fed interest's rate is a single tool that can be moved up or down.
What do you do with no model? How do you make decisions? Every decision, including making no changes, is very significant.
Nope, they failed when they didn't put the brakes on when inflation blew past 3%. They were "trying not to shock the market" but they were probably dragging their feet worrying about political blowback. Others were predicting that inflation would stay high and continue to increase along with energy prices. They only acted once it became undeniable that it was never going to be transitory.
There is no counterfactual to suggest anything is not transitory independent of the shit that's gone down. And the shit that's gone down has clear and undeniable inflationary effects. That's the short of it.
Cool story, but just take a look at the 5Y, 10Y or even 25Y chart for US inflation and 2021 instantly becomes a big outlier. Compare it to other inflationary spikes in the 70s or 80s and it's pretty obviously the start of something big. You'd have to be blind or politically compromised to state otherwise.
Not sure if this is a rebuke or an agreement. The alt text seems to agree with me now that we've shown that 2022 is most assuredly not normal, we're going to need a lot more symbols. Seriously though, massive worldwide events have massive worldwide consequences which are very often long lasting. It's also a bit of a no brainer that flooding the economy with even more cheap money on top of supply chain disruptions would result in severe inflation for as long as at least one of those conditions remained. They've finally put the brakes on with beginning to raise rates but they can't control the supply chain so that's likely to keep things in turmoil for as long as it takes for things to straighten out or crash and reboot.
why does UK gvt blame energy prices on Russia, when the Uk is close to energy independence. yeah central european countries that need to import energy from russia, okay.
the reason energy bills are so high is energy companies thought they could get away with it, and they did. Shell just reported massive quarter profits.
and the Uk will just let them scoot free
Because if they don't blame energy prices, they will have to face that it is in part down to Brexit. (and some other complicated hard to explain reasons that won't make for a good soundbite, so people will only focus on Brexit)
Brexit is basically a religion for the current Conservative party, and it absolutely can not be questioned, or criticised.
But isn't most of the developed world experiencing a recession? The US is energy independent, not having a Brexit, and still experiencing high inflation.
Johnson is a liar. Trump is a bullshitter. Johnson knows what the truth is, and is actively trying to deceive or confuse you. Trump has no idea what truth would be even in principle, he's just making whatever noises seem to work.
Probably this makes Johnson a worse person, and Trump a worse leader? I'm not sure.
I believe OPs point is we could just ban Export of gas.
This will fail for a few reasons:
* We import 101 other things from the EU (from food to medicine to electricity), if we bad export of energy, they will stop exporting those in retaliation.
* We're not that independent, we might be close right now (because it's the height of summer) but we desperately need Norway and Belgium's gas come the autumn
* Energy is a raw material in basically every manufactured product (this is why the US usually refuses to export natural gas). What this means is, if you cannot export energy as gas, you end up just using it to make manufactured products and exporting those instead. So rather than cutting domestic bills, you just end up giving a huge subsidy to energy intensive industries (like steel and aluminium production). Maybe you want to do that (the US explicitly prefers manufacturing jobs to energy production jobs). But it won't actually cut prices, it will just move jobs from outside the export ban to inside it...
Price is set at the margin, it's set by the least expensive product necessary to meet demand. Demand in England is more than can be met by cheaper internal energy, so the price is set by the more expensive fossil energy. If demand falls enough that it can be met by the cheaper sources, the more expensive sources would be locked out and the price would be set by the internal sources.
In the mean time anybody who can produce cheaper than the marginal price books a profit on the difference. In this case, a lot of it.
This is the case in some market systems but is no law of nature. It results in big windfall profits.
High fossil prices are a very fortunate thing though as we need to ramp down their use quickly to mitigate climate disaster, so this system is currently right by accident.
It's a direct consequence of there being a single price. It generally only applies to commodities.
It usually results in low profits because the cost of production does not vary wildly between vendors. Farmer Joe and Bob have roughly the same costs per bushel of wheat, so farm profits are generally quite low.
Energy windfall profits are the exception, not the rule. Windfall profits are usually only found in non-commodity markets like software.
One interesting angle, that I've not seen explored is the impact of this on CfD contracts.
Basically the UK government told renewable energy providers that they'd top up their income to a minimum amount per unit of electricity, to de-risk investing in renewable energy and remove volatility in expected income.
If the electricity price rises, by one pence, then that's one pence less the government needs to pay them, and since people are the government, it's a (very convoluted) no-op, except that you're paying the money up front, and not in taxes.
It appears we're saving 10s of Billions via these schemes, but not sure exactly how much of that is just because renewables are cheaper than other energy providers, how much because of this particular scheme etc.
why does UK gvt blame energy prices on Russia, when the Uk is close to energy independence
The UK is not energy independent. Although it imports less than 5% of its gas from Russia, it is affected by global gas prices and demand. Most UK homes are heated by gas. The average energy bill was £1,400 a year in October 2021. In April 2022, energy bills rose to around £2,000. It is estimated bills will rise to £3,400 a year from October, then to £3,600 a year from January 2023 [1]. Unless I am mistaken, these are some of the highest energy bills in Europe.
Meanwhile, the currently government has no plan or urgency to tackle the cost-of-living crisis. Instead, we have a navel-gazing Conservative party pre-occupied with who should be Prime Minister. (A choice between two terrible candidates).
I don't see how raising interest rates is supposed to affect supply-side price increases.
For example, people may choose to save their money, or not borrow (given higher interest rates), instead of buying fuel, but that is unlikely to affect it's price.
This seems more like an attempt to strangle wage increases.
The point is to cool down investment and maybe to manufacture a small recession to reduce inflation expectations.
Another point is to show that the Bank reacts to inflation, so that people (such as the Trusses of the world) know what happens if they decide to contribute to an inflationary spiral.
Supply and demand at work. If there is less demand of fuel, it's price goes down, if everything else stays the same. Certainly everything else does not stay the same, but at least partially the price increase pressure is alleviated.
Globally, perhaps, but even then supply is, let's say, constrained, currently, and can probably be further constrained to meet demand. I don't see Russia altering their output to accommodate UK consumers becoming poorer.
It seems like it rate hikes would reduce demand, and I think policymakers believe a reduction in demand will force the price reductions.
For example, in the US, recent interest rate hikes led to even larger mortgage rate hikes. The increase in mortgage rates had the effect of making it more difficult for people to afford homes. Once mortgage rates started rising here, I started to see a reduction in homes sold and it has started to lead to a slight reduction in home value.
I've noticed more for sale signs popping up. Homes were being snatched up before they even had a chance to put a sign out front, but now it takes a little longer. Home prices were getting out of hand.
Federal Reserve has limited options to deal with inflation. It all boils down to too much money chasing too few goods. The Fed Funds rate is an awkward tool, but the only option once inflation gets out of the bag is to suppress demand. Inflation can be far more destabilizing than unemployment. Of course, it would be nice if the congress could excercise prudent fiscal policy.
I’m by no means an expert but could raising rates increase the strength of the pound, which could have a deflationary affect on import prices, including energy?
> This seems more like an attempt to strangle wage increases.
It is that and more. There aren't many levers to pull but one that is available is interest rates which in a kludgy way allows you to slow down investment in businesses which in turn results in preventing wage increases, hiring, and eventually results in an increase in terminations or eliminating positions. Less money going to workers means less money can be spent in the economy and less demand for goods and services. Inflation then drops or depending on severity bursts some bubbles and enters into a deflationary period. So yes the whole point is to cause painful decreases or elimination of wages.
People are going to get hurt whatever you do. Inflation driving up wages is going to suppress investment and hurt jobs as well. Arguably increasing interest rates suppresses all forms of investment, and thus demand. High wage increases not only directly feedback loops into higher inflation due to higher labour costs, but also specifically hits employment.
Yes, I'm not saying they're doing the wrong thing. I was explaining why the parent comment was wrong to gripe about wages since that's the whole point.
You're arguing for trickle down economics, which is a hilarious fantasy made up by very rich people so they have an excuse to dodge taxes. Nothing says that less investment in business means preventing wage increases or anything else you've mentioned.
That is not trickle down economics. If you make it harder to do business by making loans more expensive then businesses will slow growth or make cuts. Slowing growth means you hire less and cost cuts usually involve eliminating personnel. Do that on a large scale and you increase unemployment and high unemployment produces an atmosphere in which people become more bearish and spend less thus eventually reducing inflation. This isn't the first time we've done this but since you aren't clear on the definition of trickle down economics I don't expect you to know that.
There is no such thing as 'supply-side price increases'. There is the market price. And the price comes down if demand is supressed.
The issue right now is that demand is actually being ENCOURAGED by low interest rates and continued quantitative easing. Don't be fooled, 2% is still a low interest rate historically speaking.
Is any western economy really not already in a recession? We already know certain economies(think Germany, US,UK,etc) have their symptoms(or trends) shown faster than the ones pegged to them. The question people should have is how we bounce back from it. Germany for example has been de facto in a recession since 2018( 0.2% See Forbes), US managed to climb until Trump's late moments.
I find it very funny when the media(not to say the establishment at large) either tries to hide the economic situation or blame it on their political opponents. Blaming Russia is not the entire issue, i'd say locking down the globe for 2 years for essentially no reason is a bigger problem, but then again people who were saying there would be repercussions for lockdowns were quickly shunned. After Russia the next boogeyman will be climate change, after that: who knows, maybe WW3 or China. All of them are real concerns on their own but none pinpoint the actual issue: western leadership that promotes policies that facilitate the very top of the "economic iceberg" instead of the vast majority of the people(think increasing the middle class).Most of the people represent the economy, so even if you have record-setting profits for corporations, the economy still performs poorly.
High energy prices are optional. US, UK, and European countries could set a limit on the price of oil. Instead, they are opting to allow companies within their borders to rake in record profits -- at the same time that they're allowing high oil prices to subsidize Russia's war efforts. This can be changed through regulation -- but I seriously doubt it will happen. It would take real political will that simply isn't there.
The fundamental problem is that there is not enough oil. This gets reflected in higher oil prices, which incentivize companies to produce more oil (which is expensive and requires long-term investment).
If you force oil prices to stay low such that they do not reflect supply-demand dynamics, you are not solving the fundamental problem. Supply and demand imbalances do not disappear when you fix the price - they are exacerbated.
> The fundamental problem is that there is not enough oil.
This is a farce. There's not enough oil because OPEC+ has decided there is not enough oil. They can easily increase supply, causing the price of oil to be more consumer friendly, but no, won't someone think of their profits?!
Why should they increase supply if they currently make enough profit on their output? Lot of companies don't lower their product prices and produce more... And we don't blame them for that.
It's a little bit more nuanced than that. Could OPEC+ release oil to the market? Sure. Will they, amid the Ukraine situation? Often, perhaps not, but maybe. Could we domestically ramp up domestic production? Yes, though the question becomes, "how quickly?", and the answer is...not very. And then amid this influx of oil, can we quickly ramp up refinery capacity to meet demand? The answer there is generally no, this sort of thing takes time, and skilled labor, which is in short supply, particularly after the lockdowns sent people into other jobs.
But yes, the core of what you were saying is correct; there is no shortage of oil presently. That said, it's important to consider different sources of oil, and the cost of harvesting them. Shale is a LOT more expensive to harvest than conventional wells, and things like Tar Sands step things up even further. We shouldn't worry about running OUT of oil in the next couple decades by any means, but the ramp up in cost should have us at least considering other options for avoiding ever-increasing energy costs, such as nuclear. Underestimating the importance of an energy supply is worth avoiding -- much of the Roman decline can be attributed to the marked reduction in available lumber. Much of what allowed the global powers of today to get that way was moving from wood to coal to oil/gas, and then a bit into nuclear -- being hesitant to continue this transition shouldn't be done without the understanding that failure to expand energy resources will necessarily cause an inability to expand, and eventually a need to contract as a civilization.
As oil is also used for most modern fertilizer, food production is the other side of this coin, and unfortunately, unlike the options in energy production, there don't seem to be any immediately available remedies that assist with large scale food production that allowed us to get a global population of over 7 billion. Again, this isn't an immediate emergency, but it's on the horizon, and does represent an existential threat to modern civilization; as such it shouldn't be ignored.
Companies are incentivized to produce more oil as long as it is profitable. They're not going to stop producing oil if they're getting less per barrel. In fact, they'll be motivated to produce more because they want to increase profits.
Further -- the medium and short term supply of oil is determined by existing infrastructure, which already exists. (Oil sands facilities in Canada, for example, were extremely expensive to build, but are now profitable if oil is at $20 a barrel.)
To say that oil companies won't increase supply if prices go down is like saying you'll stop breathing if there's less air. You'll actually, in all likelihood, just breath more.
In terms of supply -- the amount of supply very closely matches demand. A shift of less than 1% of supply versus demand shouldn't be allowed to send the economy into a recession, much less subsidize Russia's war efforts.
Supply/demand can (and should) be mediated by sensible regulations. Just as with drug pricing -- buyers should be able to negotiate. Oil sellers operate cartels. Buyers should as well.
> It would take real political will that simply isn't there.
Right. Instead, we (the UK) have two candidates that want to cut taxes for the individuals instead of making real change. BP has made 3x net profit compared to last year. ExxonMobil made 4x net profit compared to last year. Other energy companies have also raked in the profits. But yes, tax cuts will definitely help the poor, and not the rich!
I know it was inline with expectations, but A 50bps move seems far too aggressive to me. I understand the risk of long-term inflation expectation moving higher and the need to contain them, but given recession is now the base-case it seems absolutely absurd to me to be overly worried about long-term inflation expectations.
There is nothing the BoE can do to directly address the supply-side inflationary pressures we're facing. What they should be focused on right now is where inflation expectations are likely going to be given their economic forecasts, and while those forecasts do suggest double-digit inflation numbers, they also suggest recession. While some monetary tightening was clearly needed, this has been a period of historically aggressive monetary tightening, to tackle inflation pressures that they have next to no control over, into a recessionary environment, during a time when people are struggling to pay their energy bills - let alone their mortgage and other repayments linked to interest rates.
If their transitory inflation call wasn't bad enough, they're now about to follow that with an even larger policy mistake which will push thousands of people into poverty, with many likely to lose their homes and jobs as a direct result of this move. Well, that's my opinion anyway. I think this 0.5% move after 5 consecutive 0.25% hikes given the economic risks is insane.
Sometimes there isn’t any good options available. Persistent inflation is usually a long term problem, and their mandate is to (attempt to) maintain inflation within the 2% range. We might just have an unavoidable recession. I’m not diminishing the detrimental consequences of this, just acknowledging it is likely to happen no matter what the BoE chooses. At least this short term pain scenario should bring inflation back under control, allowing for growth and gain in the medium term.
I'm not saying there are good options available at this point. The primary mistake was the illusion that we could close the economy for months just to reopen without any problems, but then we followed that with the second mistake of not raising rates in 2021.
The economic consequences which would result from the COVID lockdowns, monetary stimulus and fiscal stimulus was something I warned about repeatedly during 2020-2021. We're screwed whatever we do now and I agree recession is unavoidable at this point. Many people are about to lose everything and many will die as a result of fuel poverty whatever the BoE do. All they can really do now is try to limit the pain.
On whether rate rises are needed, you're assumption is that persistant inflation is a concern, and I don't agree with this. The inflationary pressures we face are mostly a result of fuel prices which aggressively increasing rates will do nothing to solve. For you to be right you have to explain both why you think increase rates will control inflation we're seeing (it won't) and why you think inflation expectations will remain high in a recessionary environment (unlikely). In addition to this you also have to explain why further rate rises on top of the 5 prior raises is required. We know it takes time for rate rises to take effect so aggressively raising rates like this presents huge risks if economic data deteriorate in the coming months.
If the BoE is concerned about inflation expectations, then the question to ask is why this wasn't a concern in 2021. Now recession is imminent inflation expectations shouldn't be as much of a concern.
The sanctions on Russia are certainly not helping on the fuel front (never mind the food/fertilizer front), and as bad as things were made by the handling of COVID, this additional blunder took things from limited options to no options.
Central banks can only do so much when governments are hell bent on setting fire to the whole system.
Fair challenges. I don’t think that all the inflation we are seeing is fuel or supply chain constraints. I think we are also seeing demand side effects of the record low unemployment (albeit due to record low participation rate), high levels of personal savings (boosted during Covid), high property price inflation along with ongoing effects from fiscal and monetary stimulus over the past few years. Raising interest rates should remove some demand from the economy. These demand pressures all still remain IMHO.
Interest rates are a blunt instrument and unfortunately the least able to afford them are likely to suffer most. I’d support targeted government spending to those most impacted during a high inflation recession to limit the pain. I believe the PM candidate (Truss) policy to reduce taxes is misguided.
The truth is, we are probably both going to be wrong about the best way to solve this.
The problem seems to be that inflation is now moving into categories where it tends to stick around - rent and wages. As the recent rally shows, as long as the markets continue to go up, rental rates aren’t going to come down.
Commodity-led inflation might well be on its way down, but unless you do something about rampant rental inflation, it will mean nothing.
A 20% increase in your monthly gas bill hurts. But a 20% increase in your monthly rental can be life destroying.
The inflation we're experiencing is actually demand-led. Contrary to what you may believe demand has been elevated since Covid-19 and supply quickly bounced back.
Oil and gas price increases are due to high industrial and demand. Their supply is at record levels.
What is truly insane is inflation being greater than 10% and interest rates being only c. 2%. There is a reason why the BoE theoretically targets 2% above all other metrics. Unfortunately they have significantly deviated from this.
The only way for commodity prices to decline, or at least remain level, is a concerted increase across the board by the major banks to reduce demand.
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[ 2.7 ms ] story [ 184 ms ] threadA lot of it correlates well with COVID related disruption to supply, QE, and stimulus spending, and well before Putin's alleged price hikes.
We'll probably see rebate checks go out, or at least programs to give money to low-income families for their bills, but they probably won't send those out until February or so.
People are going to be wishing for global warming at that point.
[] https://www.gov.uk/government/news/400-energy-bills-discount...
Let’s just see how the electricity situation works out in the winter.
On the other hand even electric heaters must draw from somewhere, and it's looking like it might be coal.
That will also be fun. I just made a new electricity contract, from 0.26€/kWh for my current one, it will be 0.42€/kWh and that price is only because I changed to a 24 months contract (gambling prices won’t fall in a year).
I guess it’s better than freezing, but those heaters will be expensive.
Many people have actually predicted it. Not economists, though.
Same as the rise of Covid 19 was reported as far back as November 2019 on the same feeds.
The problem is no one competent is at the wheel and the default policy is keep the spice flowing and hope the fuck the problem goes away and when everything goes to crap, blame it on "external factors" or something.
Edit: I think really it's "politically inconvenient" to have issues at some times so they hide them.
And no, it is not early days and the cheap money is all gone, thus all companies funded with 98% of VC money and having little to no revenue in return for years, cannot hide and aren't going to survive that long, especially in a recession.
>Inflationary pressures in the United Kingdom and the rest of Europe have intensified significantly since the May Monetary Policy Report and the MPC’s previous meeting. That largely reflects a near doubling in wholesale gas prices since May, owing to Russia’s restriction of gas supplies to Europe and the risk of further curbs.
I'm not an economist, but another comment has already expressed skepticism over that claim.
The reason the US I presume you're talking about is hiding it and pretending it's not happening is because things are about to get way worse and you'll be begging for what prices are right now in a few months.
They'll only play those cards when it gets as bad as they're anticipating.
The UK government is anything but "realistic and honest" about all the forces at work; they are collectively still in deep denial about the impact of Brexit.
It seems to make more sense to base economic policy on finding choke points and vulnerabilities, and addressing them before they get triggered. Wars from without are unpredictable, but you can prepare for the disruption from within. Economic forecasts by contrast seem like soothsaying.
The primary reason they failed was BECAUSE of the Russia shit storm. Predictions about anything are vulnerable to change from new information. That doesn't mean making predictions is a bad idea. It's still the best model you've got.
The problem with predictions is that an event might be 99% likely to happen, but it might still be prudent to consider the 1% of cases where it doesn't happen if that's sufficiently high impact.
Forecasting is always a questionable activity. All models are wrong, some are useful.
> All models are wrong, some are useful.
A forecast that causes you to act overconfidently is worse than no forecast. All models are wrong, but some are worse than nothing.
It's not a proof by contradiction. It's showing that there are many long tail risks that are potentially very dangerous but also very expensive to try and prevent. It's not wrong, it's just a really difficult concept. The Fed interest's rate is a single tool that can be moved up or down.
What do you do with no model? How do you make decisions? Every decision, including making no changes, is very significant.
https://www.forbes.com/sites/adamstrauss/2021/07/30/here-are...
https://tradingeconomics.com/united-states/inflation-cpi
https://xkcd.com/2502/
the reason energy bills are so high is energy companies thought they could get away with it, and they did. Shell just reported massive quarter profits. and the Uk will just let them scoot free
Brexit is basically a religion for the current Conservative party, and it absolutely can not be questioned, or criticised.
Johnson is a liar. Trump is a bullshitter. Johnson knows what the truth is, and is actively trying to deceive or confuse you. Trump has no idea what truth would be even in principle, he's just making whatever noises seem to work.
Probably this makes Johnson a worse person, and Trump a worse leader? I'm not sure.
The mistake was selling off the rights of fossil fuels to private companies in the first place.
This will fail for a few reasons:
* We import 101 other things from the EU (from food to medicine to electricity), if we bad export of energy, they will stop exporting those in retaliation.
* We're not that independent, we might be close right now (because it's the height of summer) but we desperately need Norway and Belgium's gas come the autumn
* Energy is a raw material in basically every manufactured product (this is why the US usually refuses to export natural gas). What this means is, if you cannot export energy as gas, you end up just using it to make manufactured products and exporting those instead. So rather than cutting domestic bills, you just end up giving a huge subsidy to energy intensive industries (like steel and aluminium production). Maybe you want to do that (the US explicitly prefers manufacturing jobs to energy production jobs). But it won't actually cut prices, it will just move jobs from outside the export ban to inside it...
In the mean time anybody who can produce cheaper than the marginal price books a profit on the difference. In this case, a lot of it.
High fossil prices are a very fortunate thing though as we need to ramp down their use quickly to mitigate climate disaster, so this system is currently right by accident.
It usually results in low profits because the cost of production does not vary wildly between vendors. Farmer Joe and Bob have roughly the same costs per bushel of wheat, so farm profits are generally quite low.
Energy windfall profits are the exception, not the rule. Windfall profits are usually only found in non-commodity markets like software.
Basically the UK government told renewable energy providers that they'd top up their income to a minimum amount per unit of electricity, to de-risk investing in renewable energy and remove volatility in expected income.
If the electricity price rises, by one pence, then that's one pence less the government needs to pay them, and since people are the government, it's a (very convoluted) no-op, except that you're paying the money up front, and not in taxes.
It appears we're saving 10s of Billions via these schemes, but not sure exactly how much of that is just because renewables are cheaper than other energy providers, how much because of this particular scheme etc.
https://www.current-news.co.uk/news/cfd-projects-to-save-bri...
Shell might have massive profits, but it's a massive transnational organization and most of those profits are made outside of the UK.
The UK is not energy independent. Although it imports less than 5% of its gas from Russia, it is affected by global gas prices and demand. Most UK homes are heated by gas. The average energy bill was £1,400 a year in October 2021. In April 2022, energy bills rose to around £2,000. It is estimated bills will rise to £3,400 a year from October, then to £3,600 a year from January 2023 [1]. Unless I am mistaken, these are some of the highest energy bills in Europe.
Meanwhile, the currently government has no plan or urgency to tackle the cost-of-living crisis. Instead, we have a navel-gazing Conservative party pre-occupied with who should be Prime Minister. (A choice between two terrible candidates).
[1] Warning winter energy bills to rise by more than expected https://www.bbc.co.uk/news/business-62380728
For example, people may choose to save their money, or not borrow (given higher interest rates), instead of buying fuel, but that is unlikely to affect it's price.
This seems more like an attempt to strangle wage increases.
For example, in the US, recent interest rate hikes led to even larger mortgage rate hikes. The increase in mortgage rates had the effect of making it more difficult for people to afford homes. Once mortgage rates started rising here, I started to see a reduction in homes sold and it has started to lead to a slight reduction in home value.
It is that and more. There aren't many levers to pull but one that is available is interest rates which in a kludgy way allows you to slow down investment in businesses which in turn results in preventing wage increases, hiring, and eventually results in an increase in terminations or eliminating positions. Less money going to workers means less money can be spent in the economy and less demand for goods and services. Inflation then drops or depending on severity bursts some bubbles and enters into a deflationary period. So yes the whole point is to cause painful decreases or elimination of wages.
Low rates -> more money flowing into housing markets -> higher rents
The issue right now is that demand is actually being ENCOURAGED by low interest rates and continued quantitative easing. Don't be fooled, 2% is still a low interest rate historically speaking.
Basically spenders need to be encouraged to save.
I find it very funny when the media(not to say the establishment at large) either tries to hide the economic situation or blame it on their political opponents. Blaming Russia is not the entire issue, i'd say locking down the globe for 2 years for essentially no reason is a bigger problem, but then again people who were saying there would be repercussions for lockdowns were quickly shunned. After Russia the next boogeyman will be climate change, after that: who knows, maybe WW3 or China. All of them are real concerns on their own but none pinpoint the actual issue: western leadership that promotes policies that facilitate the very top of the "economic iceberg" instead of the vast majority of the people(think increasing the middle class).Most of the people represent the economy, so even if you have record-setting profits for corporations, the economy still performs poorly.
[1] https://www.theguardian.com/business/2022/may/30/could-a-car...
[2] https://voxeu.org/article/eu-gas-purchasing-cartel-framework
If you force oil prices to stay low such that they do not reflect supply-demand dynamics, you are not solving the fundamental problem. Supply and demand imbalances do not disappear when you fix the price - they are exacerbated.
This is a farce. There's not enough oil because OPEC+ has decided there is not enough oil. They can easily increase supply, causing the price of oil to be more consumer friendly, but no, won't someone think of their profits?!
But yes, the core of what you were saying is correct; there is no shortage of oil presently. That said, it's important to consider different sources of oil, and the cost of harvesting them. Shale is a LOT more expensive to harvest than conventional wells, and things like Tar Sands step things up even further. We shouldn't worry about running OUT of oil in the next couple decades by any means, but the ramp up in cost should have us at least considering other options for avoiding ever-increasing energy costs, such as nuclear. Underestimating the importance of an energy supply is worth avoiding -- much of the Roman decline can be attributed to the marked reduction in available lumber. Much of what allowed the global powers of today to get that way was moving from wood to coal to oil/gas, and then a bit into nuclear -- being hesitant to continue this transition shouldn't be done without the understanding that failure to expand energy resources will necessarily cause an inability to expand, and eventually a need to contract as a civilization.
As oil is also used for most modern fertilizer, food production is the other side of this coin, and unfortunately, unlike the options in energy production, there don't seem to be any immediately available remedies that assist with large scale food production that allowed us to get a global population of over 7 billion. Again, this isn't an immediate emergency, but it's on the horizon, and does represent an existential threat to modern civilization; as such it shouldn't be ignored.
Further -- the medium and short term supply of oil is determined by existing infrastructure, which already exists. (Oil sands facilities in Canada, for example, were extremely expensive to build, but are now profitable if oil is at $20 a barrel.)
To say that oil companies won't increase supply if prices go down is like saying you'll stop breathing if there's less air. You'll actually, in all likelihood, just breath more.
In terms of supply -- the amount of supply very closely matches demand. A shift of less than 1% of supply versus demand shouldn't be allowed to send the economy into a recession, much less subsidize Russia's war efforts.
Supply/demand can (and should) be mediated by sensible regulations. Just as with drug pricing -- buyers should be able to negotiate. Oil sellers operate cartels. Buyers should as well.
https://www.eia.gov/outlooks/steo/report/global_oil.php
Right. Instead, we (the UK) have two candidates that want to cut taxes for the individuals instead of making real change. BP has made 3x net profit compared to last year. ExxonMobil made 4x net profit compared to last year. Other energy companies have also raked in the profits. But yes, tax cuts will definitely help the poor, and not the rich!
There is nothing the BoE can do to directly address the supply-side inflationary pressures we're facing. What they should be focused on right now is where inflation expectations are likely going to be given their economic forecasts, and while those forecasts do suggest double-digit inflation numbers, they also suggest recession. While some monetary tightening was clearly needed, this has been a period of historically aggressive monetary tightening, to tackle inflation pressures that they have next to no control over, into a recessionary environment, during a time when people are struggling to pay their energy bills - let alone their mortgage and other repayments linked to interest rates.
If their transitory inflation call wasn't bad enough, they're now about to follow that with an even larger policy mistake which will push thousands of people into poverty, with many likely to lose their homes and jobs as a direct result of this move. Well, that's my opinion anyway. I think this 0.5% move after 5 consecutive 0.25% hikes given the economic risks is insane.
The economic consequences which would result from the COVID lockdowns, monetary stimulus and fiscal stimulus was something I warned about repeatedly during 2020-2021. We're screwed whatever we do now and I agree recession is unavoidable at this point. Many people are about to lose everything and many will die as a result of fuel poverty whatever the BoE do. All they can really do now is try to limit the pain.
On whether rate rises are needed, you're assumption is that persistant inflation is a concern, and I don't agree with this. The inflationary pressures we face are mostly a result of fuel prices which aggressively increasing rates will do nothing to solve. For you to be right you have to explain both why you think increase rates will control inflation we're seeing (it won't) and why you think inflation expectations will remain high in a recessionary environment (unlikely). In addition to this you also have to explain why further rate rises on top of the 5 prior raises is required. We know it takes time for rate rises to take effect so aggressively raising rates like this presents huge risks if economic data deteriorate in the coming months.
If the BoE is concerned about inflation expectations, then the question to ask is why this wasn't a concern in 2021. Now recession is imminent inflation expectations shouldn't be as much of a concern.
Central banks can only do so much when governments are hell bent on setting fire to the whole system.
Interest rates are a blunt instrument and unfortunately the least able to afford them are likely to suffer most. I’d support targeted government spending to those most impacted during a high inflation recession to limit the pain. I believe the PM candidate (Truss) policy to reduce taxes is misguided.
The truth is, we are probably both going to be wrong about the best way to solve this.
Commodity-led inflation might well be on its way down, but unless you do something about rampant rental inflation, it will mean nothing.
A 20% increase in your monthly gas bill hurts. But a 20% increase in your monthly rental can be life destroying.
Oil and gas price increases are due to high industrial and demand. Their supply is at record levels.
What is truly insane is inflation being greater than 10% and interest rates being only c. 2%. There is a reason why the BoE theoretically targets 2% above all other metrics. Unfortunately they have significantly deviated from this.
The only way for commodity prices to decline, or at least remain level, is a concerted increase across the board by the major banks to reduce demand.