Re: Property Prices down in August!!

On Mon, 29 Aug 2005 17:15:00 +0100, Richard Faulkner
<richard@xxxxxxxxxxxxxxxxxxxx> wrote:

>Just seen this headline on Radio 5 Live.
>
>Anything which puts downward pressure on interest rates is good, as far
>as I'm concerned.

Whatever it is you're smoking perhaps you could pass it round?

And when the effects have worn off you should read this.

http://news.independent.co.uk/business/news/article308775.ece

Inflation may run out of control - King
Bank of England Governor warns that householders may overreact to economic
shocks
By Julia Kollewe
Published: 29 August 2005
The Governor of the Bank of England has warned that inflation could spiral out
of control if economic shocks such as an oil price spike jolted consumers' faith
in stable prices.

Addressing other central bankers, Mervyn King said monetary policy in the UK and
US was vulnerable precisely because of its own recent success.

He argued that because consumers are so used to price stability, the risk is
that they would overreact if the economy was hit by a big shock. Mr King has
warned in the past that an oil price spike or an asset bubble could amount to
such a shock.

"Inflation expectations may be sensitive to a large but temporary shock that
moved inflation outside the range within which it has remained for some years,"
Mr King said.

"With their belief in stability jolted, households' inflation expectations might
move by much more than was justified by the temporary nature of the shock. That
would make it more difficult for the central bank to bring inflation back to
target."

Britain's annual inflation rate rose above the Bank's 2 per cent target in July
- to 2.3 per cent - for the first time since the consumer price index measure
was adopted in December 2003, due in part to soaring oil prices. It is set to
rise further in coming months as oil prices are surging to new record highs.
Worryingly for the Bank, prices for other goods have also increased.

The Bank cut interest rates this month for the first time in two years, but the
decision was opposed by four of the panel's nine members, including Mr King, who
thought that it was too early to conclude that inflationary pressures had
abated.

The current low-digit rates of inflation are a far cry from the mid 1970s when
price growth hit a record 27 per cent in Britain, but Mr King warned his fellow
central bankers not to become complacent. He said: "The moral of this particular
story is that it may be risky to infer from the observation that inflation
expectations are stable that all is well." Mr King's comments came at the annual
central bank symposium sponsored by the Kansas City Federal Reserve in Jackson
Hole, Wyoming. Bankers paid tribute to Alan Greenspan, the chairman of the US
Federal Reserve, who is stepping down in January after 18 years in the job.

Mr King said he had learnt three lessons from Mr Greenspan: that economics is a
way of thinking, not just a set of doctrines; the importance of relying on a
wide range of qualitative and quantitative data from numerous sources in
assessing the health of the economy; and that central banks should maintain a
consistent and predictable policy so that shifts do not affect the financial
plans of businesses and consumers.

Delivering the concluding remarks at the Jackson Hole gathering on Saturday, Mr
Greenspan cautioned the US government not to expect his successor at the Fed to
bail it out by printing money. In fact, he warned that monetary policy may have
to be tightened because of growing federal spending obligations. The federal
budget deficit rose to a record $412bn (£229bn) last year.

Mr Greenspan said: "The Fed would resist any temptation to monetise future
fiscal deficits. We had too much experience with the dangers of inflation in the
1970s to tolerate going through another bout of dispiriting stagflation."

And he added that monetary policy "cannot ignore the potential inflationary
pressures inherent in our current fiscal outlook, especially those that could
arise in meeting commitments to future retirees".
.

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