As the unemployment rate continues to climb and as the cost of imports, especially food, continues to rise at an alarming rate, what is happening to household budgets?
The jobs being lost to the economy today or in three main sectors. The service sector, which accounts for 70% of the economy is suffering badly at the same time as financial services goes into reverse and construction grinds to a virtual halt.
1. Realise that house prices move in a cyclical way. The peak to trough cycles are normally between 18 an 25 years. The easiest way to make money in house prices is to buy after a crash in the couple of years that house prices traditionally trundle along the bottom. The illiquid nature of property means that it can be no other way. There has never been a crash in history where house prices had a V shaped correction. Every correction in history has been U shaped.
2. Understand the anchors which limit house price growth. If you understand how a house should be priced fairly, you will have a huge advantage over the rest of the speculative and residential market in buying at the right time.
3. In property, we have often been told about location, location, location. Where you buy the property will determine to a large degree how much money you make on it in the future.
Apr 28
This month, Britain officially slipped into deflation with the publication of the retail price index for March. This index showed a decline in the price of a basket of goods measured by the RPI of 0.4%. This basket of goods includes housing, wages and consumer goods. Not since 1960 has the UK suffered from deflation. However, this figure doesn’t tell the whole story. The measures which the government use to reflect price increases are constantly changing. Currently, food and energy costs are not included in this index but are included in the core inflation reading.
By the core measure of inflation, prices rose at an accelerated rate compared to February. In February, core inflation was running at 1.6% per annum while in March this rate increase to 1.7%.
Central bankers already stated their willingness to rapidly ramp up interest rates at the first sign of inflation. In truth, we are already seeing the first signs of inflation.
The huge monetary expansion that is taking place on both sides of the Atlantic today is de facto inflation. Of course, in order to avoid an inflationary Holocaust, the central banks must tread a very thin line between stimulating the economy and triggering inflation.
Considering that food prices continue to rise at almost 10% per annum, there can be no doubt that inflation is already in the pipeline. However, the gerrymandered figures of governments and central banks state that we are actually in a period of deflation.