Inflation

[stockGURU]

We've had low interest rates and low inflation for some time now.

In that same time, the prices of many commodities such as coal, oil, steel, copper and zinc have risen dramatically, increasing costs in many areas for manufacturers.

Interest rates are also now on the way up.

With this in mind, how much longer can we expect to live in this low inflationary environment?

Are we in for a period of sustained inflation? If so, what impact will this have on things company profits and economic growth?

Any views?

[clowboy]

only that rising inflation fears is the number one reason the reserve has/will raise interest rates.

[mime]

If China keeps going the way it is we should be fine because we are probably more of a part of Asia then anywhere else.

[Smurf1976]

With this in mind, how much longer can we expect to live in this low inflationary environment?

Are we in for a period of sustained inflation? If so, what impact will this have on things company profits and economic growth?

Any views?
I think that either we get very substantial inflation or we end up with a far worse deflation problem due to the huge debts practically everywhere. The debts can't realistically be repaid, hence the need to inflate. If the inflating doesn't work then the world has a BIG problem.

[RichKid]

An article by Alan Kohler of the Sydney Morning Herald on inflation, interest rates and hedge fund buying of US$
http://www.smh.com.au/news/Alan-Kohler/Highflyers-reminded-of-their-altitude/2005/03/25/1111692625056.html

[krisbarry]

We've had low interest rates and low inflation for some time now. Interest rates are also now on the way up.


Globaly Interest rates are on their way up so it is a matter of time, that the reserve will raise rates again and again

Watch for the rate rise in April/May 2005

[tech/a]

Already pretty well accepted that a further 1/2 % will be added in the near future.

[money tree]

low inflation we have had you say?

Interest rates have been excessively low for years, pumping too much money into the system.

Commodity prices have gone through the roof.

House prices and stock prices are in bubble territory.

Oil and petrol has doubled.

But the almighty CPI says no inflation. And the lemmings believe it. Since when is the CPI inflation? CPI is merely a gauge of rising consumer prices. That is what it detects, rising prices.....NOT inflation. Inflation is NOT rising prices. Rising prices are only a symptom of inflation.

Inflation is defined as:

"an increase in the money supply, or a decrease in the good and servives available to be purchased with the money supply"

Still think inflation is low?

will interest rates go much higher? YES

[clowboy]

It would seem that there isn't much debate that interest rates will go up.

The miilion dollar question (IMO) is by how much.....

On a $250,000 loan IO a 2%( the seemingly going figure) rate rise represents $94 a week in aditional payments.

So, what are peoples thoughts?

[tech/a]

On a $250,000 loan IO a 2%( the seemingly going figure) rate rise represents $94 a week in aditional payments.



Or Zero for the next 5 yrs if your locked in.

But there are many factors that will influence any further rises.
A strengthing USD will see the AUD fall,rising the costs of imports spreading the $$ thinner.
A blow off in oil prices(Pretty slim $60/ barrel looks more likely).

Interest rates are increased to deter run away spending, to restore a balance.Decreased to encourage spending.
Growth is fine as long as it is controlled.Economies are so large that reacting to figures is like turning a Super tanker,Occasionally its not enough soon enough.

Certaintly its hard to see a sustained rise in both housing and Equities to the extent that it has over the last 5 yrs.
But unless the US folds under monetary policy collapse,My personal "Lemming" veiw is that we are likely to see a short term correction in both sectors (In some areas and groups more than others) but generally a softer landing than predicted by some.Growth will continue albeit stunted in comparison to past years.

Play it as you see it and take action which will decrease your exposure in the event of a catastophic event.The business of financial security is fraught with could/would/should be events,action wether it be to invest or protect investment is again in my view better than NO ACTION at all.

[clowboy]

I don't really know the ins and outs of economics but in the event that everything did come tumbling down and we all lost our fortunes, wouldn't that cuase an extreme decrease in spending and therefore justify interest rate decreases?

[tech/a]

Yes.

Extreme cases are called "A Depression"

Dont know what an implosion of western monetary policies would be called.

[clowboy]

So in effect interest rates rising would imply that the RBA does not consider a "crash" likely?

[tech/a]

Monetary policy is set "ideally" to encourage controlled growth.

Various economic startagies are put in place in an attempt to avoid a crash scenario.
Can it guarentee that there will be no "crash"---unfortunately NO.

If the US was stretched again by say a war,that would make for very interesting economics.
If the worlds richest economy can't pay its debts and ever increases them,
the implications are catastrophic.

Similar to Germany when its currency had no value.

With the US$ being the adopted measure of currency what happens when it has less/no value?

[Smurf1976]

To the extent that anyone contemplates property, let's just get a few points straight.

1. Prices are falling.

2. This situation arose BEFORE the interest rate rise.

Any debate about property prices is thus a debate about how far they fall, there being no "if" about it. Prices are falling.

As for inflation, it's a totally different thing to CPI and is running at a fairly high rate in many countries (as measured by M3 growth). Only question is where the money is going. First stocks, then property, now commodities with a bit into stocks and a bit seeping through at the checkout. Hmm... Where next?

[clowboy]

Smurf,

Prices are not falling everywhere in australia (yet).

[tech/a]

9 out of 10 of my IPs are in this postcode.
This is the sort of fall Im happy to take!

[krisbarry]

Be very careful tech/a in a years time this will reverse and the outer southern, and northern suburbs of Adelaide will be hit the hardest. These suburbs yeild the lowest gross income rates, greatest divorce rates,crime,poverty,loan default rates etc Best place to buy is the Eastern suburbs, even in bad years you will still make some profit.

Don't say I didn't warn you!

[tech/a]

Kris.

Thanks for your concern.

I specialise in Esplanade property with 4.
Rest are in Seaford heights with exec tennants.
I started buying in 97 so have Esplanade which I paid $190K for,now worth 3x that.
New area seaford heights around 100K now worth nearly 3x that.
Total gearing is NOW 38% was 75% initially.

Areas like Hackham,Christies,Huntfield Heights,I agree.
Im prepared for down turns and higher interest rates.
To me its just a part of doing business---this is a business when you develope,sell hold or subdivide.The holdings then become long term investments.


Those who buy now and Negative gear without specifically knowing why to implement a negatively geared property,and if infact it would be benificial to their situation ---- are certaintly at risk.

Finding a great/experienced advisor(One whos actively involved in property/trading and or successful business) is harder than finding a great investment.

[dutchie]

Interesting Trivia

Hope it never gets this bad.

# Hungary (1945-1946) - Hungary experienced a monthly inflation rate peak of 4,900,000,000,000,000,000% (4.9 quintillion percent) in the aftermath of World War II. Hungary also issued the largest denomination banknote in 1946, the 100 quintillion Pengo.
# Yugoslavia (1993-1995)- Yugoslavia suffered hyperinflation rates of approximately 5,000,000,000,000,000% when the country began to disintegrate in the early nineties.
# Bolivia (1984-1985)- The Bolivian economy saw the highest annualized rate of inflation, 23,400%, when its government decided to print money in the face of falling commodity prices, rising foreign debt obligations and increased domestic spending demands.
# Germany (1920-1923)- Germany, in the aftermath of World War I, saw peak monthly inflation rates of 3,250,000,000%.
# The highest rate of inflation experienced by the U.S. economy since the Consumer Price Index began occurred in 1918 when prices grew by 18%.

[Wysiwyg]

Interest rates have been excessively low for years, pumping too much money into the system.
House prices and stock prices are in bubble territory.

Inflation is defined as:

"an increase in the money supply, or a decrease in the good and servives available to be purchased with the money supply"


Lol. Note the date was March 2005 this poster had the markets in bubble territory. :rolleyes: I think he started a thread about shorting the AUD too. Probably makes money from trapping people.

Anyway, I was thinking of how inflation exists at the grass roots level. Like why should the cost of goods and services rise? I can only think they increase because people want to increase their profit margin.

[oztrades]

If suppliers come and go, so does the price, based on their operating costs.

If I'm making birthday cakes and the government puts on a 10% GST then the price of my cakes have to rise.

If another company monopolises flour I have to pay more for the product.

If because of weather conditions there isn't enough flour I pay more for the product.

If a country populates vigorously then there is a shortage of flour so I pay more.

If I pay more I pass on the increased cost to maintain my operating margins.

Rudimentary economics dear boy.. rudimentry economics...

[Wysiwyg]

If suppliers come and go, so does the price, based on their operating costs.

If I'm making birthday cakes and the government puts on a 10% GST then the price of my cakes have to rise.Ahhh, yes but the business passes their cost onto the consumer who has to pay the 10% tax also. :confused:


If another company monopolises flour I have to pay more for the product.
Why is it a given that more has to be paid for flour. The cost of flour only increases if the company selling it increases their price.

If because of weather conditions there isn't enough flour I pay more for the product.

If a country populates vigorously then there is a shortage of flour so I pay more.Yes I agree with weather influences on crop production but what you mean is demand outstrips supply and there could be many reasons for this. Not profit driven price increases.


If I pay more I pass on the increased cost to maintain my operating margins.

Rudimentary economics dear boy.. rudimentry economics...
Still doesn't address my confusion about profit driven price increases which can easily be dressed up as "operating costs" and "GST".

[boofhead]

Yes I agree with weather influences on crop production but what you mean is demand outstrips supply and there could be many reasons for this. Not profit driven price increases.


The demand may not outstrip supply. The companies can often put that perception out there and abuse the widely understood concept. It makes some sense in that from the top down the price increase but sometimes the end retailer may increase the price to get some money in the bank ready for their supplier increasing costs and back up the chain.

I'm sure some love inflation. The numbers of everything look bigger so some think they're doing better. In relation to everything else they may be no better off.

Governments buying votes can have impacts on inflation.

You could also look at inflation as partially the delayed cost of everyone wanting more. Look how many groups have asked for more than inflation rate pay increases. The entity needs to get that money back. Sometimes you can't rely on greater production and need to pass costs on.

[Wysiwyg]

Look how many groups have asked for more than inflation rate pay increases. The entity needs to get that money back. Sometimes you can't rely on greater production and need to pass costs on.

Yeah I don't know who does the sums when it comes to claiming a wage increase but it is just ludicrous when in turn the employer charges more for the goods or services to compensate for additional staff costs. I can`t see why wages, goods and services can`t be maintained at a level equal to the real supply and demand situation. Cans of baked beans are not short on supply but the price keeps rising. Then we get back to the business having to pay more for any multitude of excuses. As you say, the consumer is given the mushroom treatment.

[Mr J]

Like why should the cost of goods and services rise? I can only think they increase because people want to increase their profit margin.

They couldn't increase it if the money and credit supply wasn't ever-increasing. Also, the issue is value, not price.

[Wysiwyg]

They couldn't increase it if the money and credit supply wasn't ever-increasing. Also, the issue is value, not price.

From my understanding, the value of goods or service is designated in currency. Value is perception, price is what you pay or the figure placed on the perceived value.

[Wysiwyg]

They couldn't increase it if the money and credit supply wasn't ever-increasing.
That's another one of those riddles. The money supply increases where and with whom and how does someone being in greater or less debt cause the manufacturer of baked beans (for example) to continuously put prices up.

[Wysiwyg]

The financial system is built on lies and back scratching. Someone squeezing a greater profit at the consumers expense. Anyone who believes it is a genuinely functioning honest system is disillusioned, just as the power brokers in society aim to do on a daily basis with their spin on why things are the way they are.

They have their minions which follow blindly the gospel of treasury and trot out the excuses and reasoning to the masses who live on an eternal merry-go-round ride.

[Mr J]

From my understanding, the value of goods or service is designated in currency. Value is perception, price is what you pay or the figure placed on the perceived value.

Value is perception, but perception may or may not be reality. Mr Gecko says that perception has become reality when he sells a painting for far more than he paid. His perception was reality, because he was able to realise that value. However, if the new owner goes to sell it and can only get half the price, then his perception was not reality, as he was not able to realise the percevied value.

We also have to consider that everything bought is sold, and therefore for every buyer perceiving value, there is a seller with the opposite view (not always, such as in the markets, but let's pretend it is that simple).


The financial system is built on lies and back scratching.

If you can't beat them, join them. Or at least exploit their system.