Denseman on the Rattis

Formerly known as the Widmann Blog


RPI inflation about to rise?

Absurd Inflation
Originally uploaded by jurvetson

I predicted months ago that prices would go up, and Phyllis has now also pointed out that it’s no big surprise prices aren’t falling.

However, economists are still predicting that prices are about to fall.

I don’t understand this. CPI is way above target mainly because import prices are rising because of the fall in the value of the pound.

So far, RPI has been much lower because of lower mortgage payments.

But is this likely to continue? As far as I know, most good tracker rates were removed a year ago, and most new deals are now much worse.

This means that lots of people will be coming off their great deals over the next year.

Let’s take our mortgage as an example: A year and a half ago we got a mortgage tracking the base rate minus 0.2%. This means we’ve been experiencing constantly falling mortgage payments for the past year, thus being part of the downwards movement of the RPI measure.

At the moment, we pay a ridiculously low 0.3% – practically free money.

However, when our two-year deal expires in September, the best we’ll be able to get will probably be 3-4%.

Given that the interest rate can’t go down much further, tracker payments won’t fall any further, and the amount of people coming off good deals will add to the RPI.

So very soon the RPI will rise, and the CPI and core inflation will still be rising because of the low pound.

So why are the economists still worried about deflation?

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