Credit deflation and the reflation cycle to come (part 2)

[DurhamBorn]

42 minutes ago, Barnsey said:

The war on working from home begins. I predict a removal of any tax relief and wage deflation pressure on any role advertised exclusively as such. Does nothing for the wider economy, was good while it lasted but if we don't get bodies back into offices pronto, these jobs are heading to cheaper markets overseas.

 

A friend works for the council.All his bosses etc are working from home and doing sweet FA.He hasnt even got his shift rota for the year yet so he cant book holidays etc.The person working at home.

He usually uses diesel vans for his job but they have replaced with petrol and electric.No petrol pumps at their depot though so having to buy from petrol stations costing loads more.They do 1000 miles a week those vans,now petrol,massive cost increase.The electric ones arent being used,take too long to charge and range isnt big enough.

Councils eh.Half the country making like bandits feasting on the savings and labour of the private sector and people on fixed incomes.

[sancho panza]

Shaun's on the trail of the truth.It's not looking good for Joe Public.

You can tell they're at it when the GDP deflator is 6.1% at the same time as CPI is 0.4%........so one bumps real GDP up and the other keeps public sector wage claims down.

and as per @Noallegiancen says,no mention of a substantive measure of hosue prices being included.

https://notayesmanseconomics.wordpress.com/2021/03/24/so-we-are-expected-to-believe-uk-inflation-is-0-4-whilst-forgetting-we-were-told-it-was-6-1/

So we are expected to believe UK Inflation is 0.4% whilst forgetting we were told it was 6.1%?

Posted on March 24, 2021

Today we are going to go on a journey as we make our way through the UK inflation numbers. Let me warn you that there will be elements of Alice in Wonderland about this and that even Alice would be bemused by some bits. Let me start by opening with the lowest number and in something of a happy fluke for the UK establishment it is the number preferred by the media. Ironically they are being guided elsewhere but I will come to that in a bit.

The Consumer Prices Index (CPI) rose by 0.4% in the 12 months to February 2021, down from 0.7% to January 2021; on a monthly basis, CPI rose by 0.1% in February 2021, compared with a 0.4% rise in February 2020.

.......

Next comes the bit that the establishment hope you will not read. This is because there is a variant of the CPI measure that removes the indirect tax changes that have happened. For example the changes to VAT and Eat Out To Help Out. Look what happens then.

The annual rate for CPI excluding indirect taxes, CPIY, is 2.0%, down from 2.3% last month.

Suddenly inflation is on target and there was a time when the Bank of England was very keen on this measure and I remember Adam Posen emphasising it when he was a policymaker. Of course it is not convenient so will be ignored.

You can argue that not all the tax cuts will be passed on but even if we put an allowance for that then CPIY is at say 1.5% still giving a different measure.

CPIH

Next comes the measure which was supposed to be lower than CPI but as you can see has had something of a misfire.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 0.7% in the 12 months to February 2021, down from 0.9% to January.

To explain this I need to take you into the Alice in Wonderland world that has been constructed. When it came to housing costs they decided to use something which does not exist rather than say house prices ( which have this habit of rising) and mortgage costs who do exist. So they decided to assume they pay rent when they do not. They could then get the numbers from those who actually pay rent.

They ignored the fact that the official rental series is if we are polite a shambles. For example only a few years ago they had to start again it was so obviously wrong. Because of the issues they “smooth” the numbers over around 16 months to avoid the monthly numbers being obviously embarrassing. Now please do not laugh too much when you see this below.

Private rental prices paid by tenants in the UK rose by 1.4% in the 12 months to February 2021, up from 1.3% in the 12 months to January 2021.

Because of the smoothing I described earlier these numbers are yet to pick up any particular impact from the pandemic. Indeed we can drill deeper because it has been London which has seen the largest falls with Zoopla suggesting reached -5% in the autumn, which gets translated into this.

London private rental prices increased by 0.8% in the 12 months to February 2021, unchanged from January 2021.

So there are two problems here. The first is that saying this is the February 2021 inflation number is not true as 18.5% of the index is Imputed Rents which in this release are more reflective of February 2020. Next comes the fact that the measure will be useless at turning points and will end up like it has in London completely missing what has been a sea change.

RPI

This not only produces a higher number but has ignored the apparent downwards trend.

The all items RPI annual rate is 1.4%, unchanged from last month.

Indeed if we switch to the variant that the Bank of England used to target we see quite a gap between it and the one it now does.

The annual rate for RPIX, the all items RPI excluding mortgage interest payments (MIPs), is 1.6%, unchanged from last month.

So a 1.2% gap between it and the new measure!

House depreciation is code for the fact it uses house prices for about 8.5% of the index. It is much the best system we have and could be to use the current buzz phrase “world beating” with two changes.

1. Stop messing around and put house prices in explicitly
2. There is some smoothing here and this should be replaced with up to date numbers.

House Prices

The case for the above comes with elegant simplicity from a later release today.

UK average house prices increased by 7.5% over the year to January 2021, down from 8.0% in December 2020.

As you can see first time buyers and those trading up are facing quite a lot of inflation which due to the swerves described above slips between the fingers of the official “housing costs” measure. At the moment those in the North West are being especially hard done by.

The North West was the English region which saw the highest annual growth in average house prices (12.0%), while the West Midlands saw the lowest (4.7%).

If we put house prices in CPIH with the current weights a back of the envelope calculation gets you to 1.8% rather than 0.7%.

 

Comment

Sadly this is yet another story of reality being massaged to avoid telling the truth. Or to be more precise describing reality accurately as there is always some doubt in inflation numbers. This was highlighted by former Bank of England policymaker Andrew Sentance earlier.

What is Uk inflation? Measured by CPI it is currently 0.4 percent but this is the lowest of the available inflation measures. Here are the rest – CPIH 0.7pc; PPI (output) 0.9pc; RPI 1.4pc; RPIX 1.6pc; CPIY 2.0pc; PPI (input) 2.6pc; GDP deflator 6.1pc; GVA deflator 8.0pc.

They are obviously hoping we have forgotten that the GDP Deflator is at 6.1% as they tell us another measure of inflation is 0.4%. Actually Andrew is exhibiting why he made a good external member of the Bank of England in that he looked at different views. Unfortunately the current crew are nothing like that.

[Barnsey]

1 hour ago, Hancock said:

I do hope so, i think its great the way the Tory party have shot themselves in the foot by not realising this, the reason they don't realise is because non of them have ever had a proper job for shite wages in an unpleasant environment.

Something like 90% of Nationwide workers want to work from home, and to be fair who can blame them for not wanting to be stuck in traffic for 10 hours a week, eat shite sarny's in a hurry and to sit with people they despise year after year, for a relatively low wage.

The communist bastards who voted with Boris and Hancock would be put up against the wall in any decent country. 

They know what's happening next. No coincidence we're now hearing of multiple branch and office closures just as we're about to open back up. Places like South Africa ready to absorb a huge number of UK admin and customer service roles. Had to call Amazon recently, SA call centre.

What folks don't realise is that once we do reopen, execs are going to be thinking "why are we paying Joe Blogs the same salary now that he's moved north and doesn't have a commute any more?". The naivety of the masses is unreal right now. Likewise I can't blame them, other half has enjoyed working from home immensely, but is realistic that such a sweet combination of same salary with no commute or other expenses was never meant to last.

We desperately need wage inflation in coming years, but this WFH nirvana might turn out to be a powerful disinflationary force.

[Lightscribe]

https://www.bbc.co.uk/news/business-56512169

The government is well aware of what would happen when going down this road, after all this country is fixated on ‘they that giveth shall not taketh away’. Any ‘temporary’ uplift becomes set in stone from tax credits masses to the white collar brigade.

It’s ironic really. These city commuting types that were the everyday independent coffee shop drinkers and authentic sushi eaters, so adamant about supporting the in vogue pop up businesses, now suddenly couldn’t give a shit about the city.

They now think it’s their ‘right’ to go back part-time for a full time job. After all they’ve uprooted from zone 2 now and bought in Cornwall they couldn’t possibly make the commute, be reasonable.

In regards to the civil service this has been an absolute dream come true. The main ethos is to do as little as possible, use all annual leave/sickness/carers days/special leave (up to the limit) to be there as little as possible, counting down the days to DB pension access. This has enabled those 55+ on the old pension schemes (those ingrained into that ethos) to basically retire early, they couldn’t believe their luck. There’s no way your getting those back in the office now for love nor money. ‘Covid risk’ will become the catch all trump card.

The hardship of the next decade needs to happen unfortunately. Jobs will be outsourced, the feckless kicked to the kerb and harsh lessons learnt. Eventually we may even see the collapse of pension schemes like in Greece.

[Loki]

5 hours ago, Barnsey said:

We desperately need wage inflation in coming years, but this WFH nirvana might turn out to be a powerful disinflationary force.

FWIW the traffic into London suggest the mass WFH is nothing but a pipe dream

[Loki]

7 hours ago, Barnsey said:

The war on working from home begins. I predict a removal of any tax relief and wage deflation pressure on any role advertised exclusively as such. Does nothing for the wider economy, was good while it lasted but if we don't get bodies back into offices pronto, these jobs are heading to cheaper markets overseas.

 

People riffing off each other when a mere misunderstanding or accident of speech can cost you your job? Do one Rishi

[Lightscribe]

40 minutes ago, Loki said:

FWIW the traffic into London suggest the mass WFH is nothing but a pipe dream

The traffic has been the same throughout lockdown (I know because I’ve been in it) the only difference was at the very beginning when it was a ghost town and my journey time by car was taking 20mins instead of over 1 1/4 hours. 

The white collar workers never drove into the city anyway (the trains/tubes are still relatively empty) The ones needing to drive were the construction/physical workers etc so that never really changed. Go into Canary Wharf or central London and you’ll only see smatterings of people here and there. 

[Barnsey]

It's here folks...

 

[Tingles]

6 minutes ago, Barnsey said:

It's here folks...

They have been trialing for months (Shenzhen & Suzhou) and will be first to market in CBDC terms.

[jamtomorrow]

8 hours ago, Barnsey said:

The war on working from home begins. I predict a removal of any tax relief and wage deflation pressure on any role advertised exclusively as such. Does nothing for the wider economy, was good while it lasted but if we don't get bodies back into offices pronto, these jobs are heading to cheaper markets overseas.

 

I suspect Rishi's focus on the stranger danger of jobs being exported will work. In the end, we still tug the forelock in this country and we can read between the lines well enough: step back in line, there's a good chap.

In reality of course, it cuts both ways. My line of work in specialist IT has gone nuts and I've been beating headhunters away with a shitty stick for months now. Pick of the jobs worldwide, all permanent remote working, all with pay and perks more in line with Valley compensation than a Midlands backwater.

I'm not tempted - been there done that, and the simplicity of my current setup working for a UK company is worth a lot to me - but there are plenty that are coining it in.

Luckily the company I work for couldn't give two shits what Rishi and the Landlords think. They'll manage working arrangements in whatever way best delivers the goods, and remote working is winning hands-down - cheaper, more productive, lower staff turnover. COVID was simply the push they needed to run the experiment.

[Chewing Grass]

When the only desk you have got to go back to is a hot one used by different random people it isn't your desk so there isn't much of a bond to 'the office'.

[sancho panza]

9 hours ago, Barnsey said:

The war on working from home begins. I predict a removal of any tax relief and wage deflation pressure on any role advertised exclusively as such. Does nothing for the wider economy, was good while it lasted but if we don't get bodies back into offices pronto, these jobs are heading to cheaper markets overseas.

 

Goldman msut have gone long CRE.

8 hours ago, DurhamBorn said:

A friend works for the council.All his bosses etc are working from home and doing sweet FA.He hasnt even got his shift rota for the year yet so he cant book holidays etc.The person working at home.

He usually uses diesel vans for his job but they have replaced with petrol and electric.No petrol pumps at their depot though so having to buy from petrol stations costing loads more.They do 1000 miles a week those vans,now petrol,massive cost increase.The electric ones arent being used,take too long to charge and range isnt big enough.

Councils eh.Half the country making like bandits feasting on the savings and labour of the private sector and people on fixed incomes.

I've been pleasantly surprised by how many people have commented on the latest council tax rise.The sheer scale of the inefficiency and waste is beginning to dawn on the opinion formers.Sadly,cities like Leicester are doomed to tread the path trodden by Detroit unless our govt suddenly starts showing the sort of vision that it's handling of the panicdemic shows it's incapable of.

Genuinely,even before the zoom experiment/scamdemic began,I think Joe Public was beginning to wonder why places like Leicestershire needed District councils,Leicester CIty council,County Council.

Hinckley & Bosworth Council is a case in point.450 workers for a population of 110,000..........and then you see how little they actually do(the bulk of the real work gets done by the county council.Never ceases to shock me how little these District/Borough councils do.

Just to add lot of people passing comment on the rise in the police bills and wodnering how much goes on pensions..

The rope is getting pulled tighter and tighter.

https://www.gov.uk/understand-how-your-council-works

County councils

These are responsible for services across the whole of a county, like:

• education
• transport
• planning
• fire and public safety
• social care
• libraries
• waste management
• trading standards

District, borough and city councils

These cover a smaller area than county councils. They’re usually responsible for services like:

• rubbish collection
• recycling
• Council Tax collections
• housing
• planning applications

4 hours ago, Lightscribe said:

The hardship of the next decade needs to happen unfortunately. Jobs will be outsourced, the feckless kicked to the kerb and harsh lessons learnt. Eventually we may even see the collapse of pension schemes like in Greece.

Quite.I used to hope we could stop waht's coming happening because you jsut don't want to see your country in hard times.Then you realise there's a reason we only have substanial debt deflations once every 70/80 years and that's because the last people who lived through one have just left public office.I date the beginnings of the current fiasco to the repeal of Glass Steagall in 1998 when the US initiated the banking 'arms' race and Greesnspan jsut happened to be in the Chair.

[sancho panza]

Eye watering drop in the brith rate across the Eurozone.The difference between Germany and the peripheral nations is likely down to much higher job security/reliable benefits.

People know when it's a tough time to have kids.

[dnb24]

2 hours ago, Loki said:

FWIW the traffic into London suggest the mass WFH is nothing but a pipe dream

It does seem like that but one thing to note- I travelled through London a lot on a motorbike in lockdown 1 and the amount of work to close streets and prevent rat runs was huge and now is causing massive issues on the main drags- almost as if by design!

edit to add- central London is still pretty dead but north of the Euston road and south of Peckham road seem pretty much “normal” now- congestion wise.

[Lightscribe]

1 hour ago, dnb24 said:

It does seem like that but one thing to note- I travelled through London a lot on a motorbike in lockdown 1 and the amount of work to close streets and prevent rat runs was huge and now is causing massive issues on the main drags- almost as if by design!

edit to add- central London is still pretty dead but north of the Euston road and south of Peckham road seem pretty much “normal” now- congestion wise.

Yes I’ve noticed that too. They decided to do all planned roadworks at exactly the same time all over London just as lockdown started. In the end once the traffic volumes increased, I gave up and went back to using  the train instead.

Currently on the train it’s one service every 40 mins (there used to be four in that time - let’s see them justify a fare increase this year), a cancelled train and that’s it like the snow we had a few weeks back. If you don’t time it right it’s an hour journey to central London and I’m in zone 3.

I got so arsed off the other day, I asked the tfl guard when they planned to start doing their job and providing more services. He said they had no current plans to.

[feed]

Rishis right, the only way we start to see any return to anything like normality is when people start going back to the office.  There are people in the state that would have everyone locked in their bedrooms for another year. 

Not that he'll be able to influence it all that much.  

https://www.teletrader.com/ford-to-offer-30-000-employees-remote-work/news/details/54945374?internal=1

Ford Motor Co. announced on Wednesday that it will introduce a policy giving its North American employees the option to work from home indefinitely. The offer will apply to all workers whose positions allow for remote work and will be implemented in July, the company announced at a virtual town hall meeting.

Same thing, more or less, is happening in the EU.  

But whats all this about working from home will lead to offshoring. The first job i was displaced from that went to India was in 2002. Offshoring middle income jobs to India has been very much pat the the disinflation cycle of the last 20 years.

Working from home doesn't change that.  Frankly i think this will delay that action down or at least defer it for a couple of years, as companies and HR department restructure their organisations based on the hybrid working model and the requirement of some people to be in an office.  All at the same time as trying to figure out what to do with the real estate that no one wants.  

Our place, 95% of the staff said they wanted Hybrid.  That's in the office at least 1 day a week.   

 

[Hardhat]

At my company they've given up the lease on the London office and put all workers on home working contacts whilst the rest of the pandemic plays out. Still have a head office out in the sticks.

Personally I prefer having the option to go to the office sometimes, I don't have a separate office room at home. 

[DurhamBorn]

5 hours ago, Lightscribe said:

https://www.bbc.co.uk/news/business-56512169

The government is well aware of what would happen when going down this road, after all this country is fixated on ‘they that giveth shall not taketh away’. Any ‘temporary’ uplift becomes set in stone from tax credits masses to the white collar brigade.

It’s ironic really. These city commuting types that were the everyday independent coffee shop drinkers and authentic sushi eaters, so adamant about supporting the in vogue pop up businesses, now suddenly couldn’t give a shit about the city.

They now think it’s their ‘right’ to go back part-time for a full time job. After all they’ve uprooted from zone 2 now and bought in Cornwall they couldn’t possibly make the commute, be reasonable.

In regards to the civil service this has been an absolute dream come true. The main ethos is to do as little as possible, use all annual leave/sickness/carers days/special leave (up to the limit) to be there as little as possible, counting down the days to DB pension access. This has enabled those 55+ on the old pension schemes (those ingrained into that ethos) to basically retire early, they couldn’t believe their luck. There’s no way your getting those back in the office now for love nor money. ‘Covid risk’ will become the catch all trump card.

The hardship of the next decade needs to happen unfortunately. Jobs will be outsourced, the feckless kicked to the kerb and harsh lessons learnt. Eventually we may even see the collapse of pension schemes like in Greece.

Agreed,its incredible the lack of work councils manage,and i mean manager level.My partners bosses are all sat at home doing nothing waiting for big pensions.The problem is i dont think they will deal with it.I think they will simply keep taking more and more from people who work.

The thing is though i dont blame people.Half the country gets welfare for doing nothing,or very little and that then makes people working think sod that.Its a creeping cancer.

I hate the system,but it drove me to understand how things work and learn.

I went for some fuses yesterday as im fixing a freezer and noticed the price increases in Homebase.I know thats a pricey shop,but even cheap items are suddenly £12 etc.

Inflation is way over the official levels,hugely so and its only just starting.My inflation target of 65% over the cycle might be conservative.

Crucial we continue on our journey of leveraging this inflation as much as we can.

 

[DurhamBorn]

Oh and we are covered if this working from home stays high,as im sure it will.Telcos and energy should gain.Royal Mail of course and even the fag companies.No little Hitler saying when you can have a smoke.I guess oil would see a fall in use,but tiny in the scheme of things compared to Asian growth.Of course we didnt buy them expecting one of the bull cases to be a shift in working to home,but the macro pointed the way and the rest is the cycle playing out.

Might be time to bail some of the transports though and luckily the money press has seen those x2,x3 or more off the lows.

 

[Hancock]

4 hours ago, Loki said:

FWIW the traffic into London suggest the mass WFH is nothing but a pipe dream

Ive been on the trains into London many times over the last 12 month and they are empty, which may account for the extra cars.

[Hancock]

50 minutes ago, DurhamBorn said:

.My inflation target of 65% over the cycle might be conservative.

Is this a wage inflation target .. or just goods?

[DurhamBorn]

26 minutes ago, Hancock said:

Is this a wage inflation target .. or just goods?

RPI 

[kibuc]

4 hours ago, Barnsey said:

It's here folks...

 

I'll admit, I'm dumb and I'm not getting it. The money in my bank account is already digital. I receive and spend it electronically, mostly using my phone. How is this different?

Edit: is it a state-run blockchain, so like a castrated crypto?

[DurhamBorn]

Interesting podcast for LNG an area i see forcing gas to be a fantastic investment.China is expanding storage,that is the real signal with the lag.

This gives you a good idea of the big players who will control the industry.For Petronas the way to play them is through Repsol IMO.I need to revisit the area again to try to find a few smaller players with potential in the sector for multi baggers.The big gainers are the big stocks we own already.

https://eneken.ieej.or.jp/data/7814.pdf

[Tingles]

9 minutes ago, kibuc said:

I'll admit, I'm dumb and I'm not getting it. The money in my bank account is already digital. I receive and spend it electronically, mostly using my phone. How is this different?

CBDCs will enable automatic taxation, automatic (transactional) surveillance, automatic blacklisting and programmability (i.e. can only be spent on certain things or with specified vendors).  Add these functionality capabilities to the removal of cash and there is your difference.