Inflation - the Elephant in the Room

[PNWokingham]

With asset prices - houses, cars, equity and bond markets - at all time highs. The next big elephant in the room is rising inflation and its knock-on effect on interest rates and the resulting impact on asset prices. The markets are still predicting no rate hikes in the US until 2023 and the latest route in inflation is a temporary post-covid bounce. That may be the case, but i think there is a good chance that investors are being too complacent. I think it takes a brave person to jump into the first-time housing market or leverage up to trade up at this time.

It is pre financial crisis in 2008 that we have had a normal boom and bust cycle. I think we may be on the cusp of returning to normal - but very worried about how the highly leveraged world will deal with it

 

[IanMcC]

I like golf, me.

 

[Imurg]

Pneumatic Pachyderms - that's it..I'm done.....I'm becoming a hermit

 

[D-S]

Never understood with crazy house prices (due to years of massive above wage growth inflation) that the government have all these first time buyer schemes, stamp duty holidays etc etc to encourage people to buy but at the same time trying to dramatically increase supply that should have the effect of driving prices down. This coupled with interest rates which have only one way to go.

I remember the days of negative equity in the 80's and 90's - you really don't want to go there.

 

[Deleted member 29109]

Had an interesting conversation about exactly this yesterday at golf with friend who is an economist.

We are not going to get the hyper inflation Zimbabwe style, but believe some pretty serious inflation could be on the horizon. There is nowhere to go with interest rates. Prices for food and building materials are rocking. People want the be paid more and people buy everything is on credit.

The government's (not just this one but previous ones too) solution to national debt to to use inflation to pay it off. The same is being done by people with massive mortgages.

Governments around the world keep printing money to paper over the cracks. That cannot go on forever.

Its one big bubble that will cause a mess if it goes pop.

 

[jim8flog]

Had an interesting conversation about exactly this yesterday at golf with friend who is an economist.

We are not going to get the hyper inflation Zimbabwe style, but believe some pretty serious inflation could be on the horizon. There is nowhere to go with interest rates. Prices for food and building materials are rocking. People want the be paid more and people buy everything is on credit.

The government's (not just this one but previous ones too) solution to national debt to to use inflation to pay it off. The same is being done by people with massive mortgages.

Governments around the world keep printing money to paper over the cracks. That cannot go on forever.

Its one big bubble that will cause a mess if it goes pop.

I am old enough to have seen many 'pops' but we always seem to get over them in the long run.

 

[D-S]

However there is a lot of people who have not seen things go 'pop' and assume the only direction house prices have is up.

 

[PNWokingham]

However there is a lot of people who have not seen things go 'pop' and assume the only direction house prices have is up.

Exactly. I am trying to persuade my fiancé's kids to bin the idea of buying for circa 3 years as I cannot see with any logic how house prices cannot fall and interest rates rise. Saving up more deposit and looking with fresh eyes after a 3 or 4 year saving plan seems a good option.

One scenario is that central banks stay behind the curve for next 18 months or so and then have to play catch up as inflation bites. The scenario of 2 or 3% hikes in 2023 will kill growth and all asset markets. 2023 to 2025 could be a great buying opportunity last seen in early 2009. I hope this scenario does not play out but suspect a mild version will

I would love to see central banks turn off the printing presses on the next few months to at least start the normalisation process.

 

[Bunkermagnet]

Isn't this where we go wrong, we see housing as an investment. House prices have risen sharply with so many leaving the cities and able to work from home, but what happens when those companies insist on greater time in the office and the longer commute grinds them down....?

 

[Deleted member 29109]

Isn't this where we go wrong, we see housing as an investment. House prices have risen sharply with so many leaving the cities and able to work from home, but what happens when those companies insist on greater time in the office and the longer commute grinds them down....?

Decent people will go work somewhere that allows home working or flexible working.

 

[Bunkermagnet]

Decent people will go work somewhere that allows home working or flexible working.

I agree, but flexible doesn't mean "only from home", and when people find they are having to work more days in the office than now and the commuting costs start to add up the current trend to move away into the greenery will start to reverse. I am already hearing from some of my customers what their employers are planning, and the American companies are leading the way for a return to the office for a greater number of days than working from home.

 

[D-S]

It’s not just the COVID house price boom, prices have been outstripping retail and wage inflation for years - the pandemic has added fuel to the fire not only in price inflation but more worryingly upward pressure on interest rates.

 

[SteveJay]

However there is a lot of people who have not seen things go 'pop' and assume the only direction house prices have is up.

But you can say that for first time buyers in any era.
When I bought my first house in the late 80's, I was somewhat naive despite working in a bank and never anticipated the negative equity trap I fell into or that interest rates would reach 15%.
However, we got through it, just like Jim8flog's comment "I am old enough to have seen many 'pops' but we always seem to get over them in the long run".

 

[oxymoron]

Decent people will go work somewhere that allows home working or flexible working.

Decent people ? So i suppose scaffolders , builders and such are not "decent people " , not every one can work from home so commute\travel costs are already a factor in these lives .

 

[Deleted member 29109]

Decent people ? So i suppose scaffolders , builders and such are not "decent people " , not every one can work from home so commute\travel costs are already a factor in these lives .

Do scaffolders work in an office?

 

[Billysboots]

I’m no economist, but with no mortgage, an index linked pension and a number of investments I have a keen eye on inflation and certainly interest rates ?

 

[SwingsitlikeHogan]

From a purely personal perspective I have decided that can’t and won’t worry about inflation and my savings and pensions. If down the line money gets tight then we can always do equity release or sell the house we own and downsize or relocate to refresh savings. We are fortunate that we are in such a position…as much of what has got us to where we are today has been luck and good fortune on top of our years of (mostly) hard work.

 

[Neilds]

What is the big thing about house ownership in this country? Other European countries do not aspire to own their own home, Switzerland for example had 41% home ownership in 2019 (random internet search), Germany 51%. The UK were at 65% but expect many more wanted to be on the ladder but couldn't for various reasons. Top was Romania with 95% home ownership!!! I own a house, but with no kids there is no-one to leave it to and it is going to charity when we die so why did we bother? Could have rented and saved ourselves a fair bit of money and not had to worry about working so long - was in Military and didn't buy until almost 50, but it just seemed to be the thing to do. Was it security, status, can't really say.

 

[oxymoron]

Do scaffolders work in an office?

No they generally do not as you are probably well aware , i was pointing out you said "decent people " and that statement is pure tosh .
Not all people can work from home and you insinuated "decent people" should go somewhere where they can work from home .
Can you please define what you call decent people ? And why you think they should move jobs just so they can work from home ?
Are manual workers not in your list of decent people ?

 

[Deleted member 21258]

I hope what I am hearing, doesn't reflect fully into inflation figures in the months to come. Could be some largish increases, when we could least do with it.

We live in the era of a massive credit bubble, which has been running for decades now, since say the 70s. Wonder what the governments will do next time the bubble starts/trys to burst.

I personally think capital gains on residential property should be taxed at say 90%-100%, but think I am in the minority with that view