Inflation to go back up?

[rov1200]

OPEC have agreed to cut oil production by a quarter with the intention of forcing the oil price up. Prior to the recession oil increased to nearly $150 a barrel but because ot the recession is now trading about $50. Although demand is now much lower will this cap on production cause the price of oil to increase which ultimately leads to higher inflation? The bank rate has come down to just over 4% mainly because of the lower price of oil.

Would this create havoc with our inflation and bank interest rates?

http://news.bbc.co.uk/1/hi/business/7786456.st m

[rov1200]

Correction: Bank rate is now 2%. Inflation is just over 4%

[tigerlily11]

I don't get any of it.

[stokemaveric]

if the price of oil is so low why havent the utility services lowered the price of gas and electricity??? i will tell you why its because the greedy fat cat shareholders dont want to lose money,it was in the news last week that people using prepayment meters are being ripped off by these companies and that the govt was seeking for them to address the situation by lowering prices,but what have we heard since then?nothing thats what,they are cutting oil production so that the price of oil will increase,therefore everything else will go up,petrol and diesel will shortly begin to creep back up,a deep recession is imminent and in the new year there will be major job losses,by easter a million more people will have lost their jobs,the economy will not pick back up until mid 2011,we are in for a bumpy ride indeed,and whoever wins the next election will have their work cut out to get economic stability back to the uk...

[jake-the-peg]

You've forgotten to factor in the fall of the pound against the dollar since then as well.

One of the reasons gas hasn't fallen in price is because the gas companies are sitting with full gasometers bought in the autumn when the price was high.

Yes there is a concern that dropping interest rates too rapidly could cause an over-correction but right now there doesn't seem to be much sign of it.

[Gromit]

The BOE are more worried about inflation dropping too rapidly or even deflation. If the price of oil does increase, it may actually be helpful in re-adjusting from too rapid a decline.

http://www.bloomberg.com/apps/news?pid=2060106 8&sid=adZqaKjUauZE&refer=home

[rov1200]

Quite right. The � has been falling against the Euro and is made worse by having low interest rates as people invest their money elsewhere.

As mentioned if the price of oil goes up inflation is sure to follow as it makes prices of goods to buy more expensive.

So the end result is that inflation goes up and at the same time the BofE is reducing the bank rate some say to 1% shortly. These two forces rather than acting in harmony work against each other in a crisis never ever seen in our history.

[Gromit]

Volatility of oil prices is not good for anyone.

The very high prices we saw in the summer was bad for consumers. The collapse in the price we have now does not suit the produces (or the consumers in the long run). The cut in production is an attempt to get the price to an happy medium between both extremes.

OPEC ministers are due to meet in London tomorrow. The meeting was called when prices were to high, but they now find themselves grappling with a price that is too low. The common ground for everyone is to stop the volatility and hopefully, that is what they will concentrate on tomorrow.

http://www.guardian.co.uk/business/feedarticle /8165180

As people lose their jobs and money is generally tight, demand will drop and prices will drop. Even if oil does go up, inflation will continue to fall, not rise again.

[rov1200]

Gromit the reason for the recent drop in inflation was because fuel we bought at the filling station had come down. Also hauliers costs were reduced in getting the goods to the shops.

Therefore if the oil price was to rise it would not take long before we are paying in excess of the �/litre again especially as the barrel of oil is priced in $ which is passed onto us. And we all know how the � has decreased in value.

[Gromit]

rov1200

There wasn't just one reason for the fall in inflation. Fuel was one reason. Falling demand another.

[youngmafbog]

Hauliers use diesel, think you will find that has not gone down so much as we import most of it and with a low �-$ it cancels out the oil barrel reduction.

I cant see inflation going up at all. As said by quite a fewe econimists and mentioned earlier deflation is likely and this is bad news for us all.

More likely we will see interest rates rise sharply, I have seen some forcasts as high as 15% by 2010. No doubt at the top end of the scale but not unfeasable.

The BoE (aka Brown) is trying to control the economy by interest rates. It can work although it does have the short term effect of people moving out of your currency. At least not being in the Euro gives us this option.

Whatever happens there are tough times ahead for most of us. Batton down the hatches and tightne the belt. Spending might help Browns figures but it wont help yours !

[jake-the-peg]

Remember the � dropping in value is not always a bad thing.

It's good for exporters and when there's a recession about it's exporters who are providing the jobs!

I certainly wouldn't want to see the � at $2

[rov1200]

A cheap � is great when other countries want to buy our stuff. Unfortunately they are not! So what we'll have is a massive balance of payments problem. Its like offering outher countries a continual sale and in the end someone has to pay for it.
Have you been in Woolworths lately. Everything is marked dow, 20%, 30% and even 50%. Many walked out without buying as the goods on offer don't seem good value.