THIS should be my last column on the current inflation hoodwinking, which I hope has been helpful.
It has, and will be used for political measures, so watch out for that in the near future. It’s an easy trick to use, and easily missed, so bear this in mind when you are looking at your future mortgage rates and whether to fix it or not.
Let me explain: Inflation is calculated as a year-on-year number. So, 12 months from now, if prices had risen by one per cent in that time, inflation for that year was one per cent.
To explain the hoodwink. If inflation rose one per cent next month alone and nothing for the next 11 months, inflation would be one per cent. But in 13 months’ time, the one per cent rise for next month would have left the year on year figure, i.e. for those 12 months, inflation is flat – zero per cent.
Let’s therefore consider the extraordinary inflation we are having right now which is driven primarily by corporate greed, by sanctions against Russia which therefore do not give us access to their prices for oil and gas and food, shipping costs, as well as low supply from China’s zero-Covid policies.
If I am to believe the car parts supplier I use, he advises me he has been awaiting parts for some cars for a year and they have been told they cannot get them past Ukraine, or the surrounding areas, because of the logjam of transport. A year.
Much of the above inflationary pressures have moved out of the system after driving prices wildly over the last 18 months. Those costs will fall (greed and the situation in the Ukraine aside).
Even if they didn’t (i.e. they stayed the same), the price rises from 18 months ago will soon be out of the calculations. A year from now they will all be out of the calculations, so inflation will be reported as ‘falling’ when, of course, it has not. Simply put, the previous price spikes will have left the 12 months calculation.
You might even hear of deflation. With that, and prior to that, inflation is being battered by the old tool of raising interest rates, an age-old strategy that simply cannot work effectively other than creating a recession to ‘re-balance society’.
More unemployment tells those ‘greedy workers’ to stop asking for more money, which of course is created by corporate greed, not them.
The IMF confirm the largest contributor to Europe’s inflation over the last two years is indeed corporate greed – rising corporate profits.
The corporations want labour costs low, and recessions do that. More jobs available makes the workers ‘toe the line’.
That’s why I agree with windfall taxes. Corporations making money out of others’ misery isn’t a good thing. But effective windfall taxes won’t happen.
Lobbyists representing the fossil fuel companies actually run parliamentary groups on energy and climate policy without the need to formally declare that.
You just couldn’t write it. In an extraordinary scenario, the UK Petroleum Industry Association (UKPIA), which is an alliance of the world’s biggest oil companies was playing a key role in the all-party parliamentary group. So, if you contacted parliament to complain, you were contacting that bonny bunch first.
As for lobbying rules. They are plain nuts. No surprise, given that each year the five largest oil and gas companies give $200 million in lobbying designed to control or delay/block any climate motivated policies - 500 of them attended COP26 last year, and it wasn’t for the prawn sandwiches or haggis.
When Exxon’s director was asked: “Did we aggressively fight against some of the science? “Yes,” he said.
“Did we join some of these shadow groups to work against some of the early efforts?” “Yes, that’s true. But there’s nothing illegal about that...”
So don’t expect too much empathy.
Your mortgage rate: As the above numbers move out of the statistics headline, inflation ‘falls’, as does the need for higher interest rates. I firmly believe they shouldn’t be increased in any event, but the fake headline rate takes away that excuse. It will, however, be used politically – ‘look what we did’, when in fact, nothing occurred, other than time passing.
Be careful, therefore when considering fixing your rate for a long period and take advice from a good independent mortgage broker.
Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you have a mortgage enquiry email my mortgage director Pat Greene on pgreene@wwfp.net or call 028 6863 2692.
