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Robin Grant

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The basic premise of interest rate hikes as a method to curb inflation is a one dimensional approach to financial control. Fundamentally it has a major flaw if its the only method used (which unfortunately it seems to be) as it’s based on the assumption that consumers excessive spending as opposed to being attracted to save, is what is driving prices up. I don’t think anyone believes that the average consumer is on a spending spree that is forcing prices up due to excessive demand effects. Ironically raising interest rates which therefore increases mortgage payments compounds real inflation to the consumer. This isn’t reflected though with the banks calculation of inflation as they use CPI to measure it and not RPI (RPI includes mortgage interest payments, CPI doesn’t). So logically how does an interest rate increase help? It actually compounds the issue further. In this situation the causes of inflation are multiple but not remotely linked to excessive consumer spending. Interest rate rises will do nothing more than force further hardship on the economy. Landlords and home owners and then ultimately renters will all feel the effects further as landlords mortgage payments will reach levels where if they don’t adjust rents upwards, will be forced to sell up or lose money every month until they themselves cannot pay their own bills. High interest rates curb investment too. All property development becomes further less viable than before. In fact all businesses that require financing to invest and expand will find things tougher. Definition of madness is doing what you’ve always done before and expecting a different result. ‘Nuff said’.

From: Robin Grant 11 May 2023 10:28 AM

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