Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
I was snarking, Mig. But you raise an interesting point (no pun intended).

Decreases in interest rates mean that more people borrow to buy assets.

Result - ASSET price inflation, which COULD feed through into RETAIL price inflation via equity release, although I doubt it, because IMHO increased demand for consumer goods using this released equity is unlikely to drive up prices. Ther's no shortage of supply.

However, I believe that wherever interest rates are in excess of the costs of bank administration and of borrower defaults then that excess is de facto inflationary. This is because of the deficit base of our money supply. ie there's virtually no "money's worth" backing it.

If I am wrong, I would like to know in what respect.

In simple terms - and I do not use Economic Speak here like Factor Inputs yada yada - if all else remains the same and a business's costs increase because its borrowing becomes more expensive, then this will lead to the business increasing its prices if it can, and hence to retail price inflation.

So in summary, it appears to me as a Bear of Little Economic Brain that interest increases are inflationary in respect of RETAIL prices but may operate to reduce inflation in ASSET prices.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Jan 17th, 2007 at 06:42:59 AM EST
[ Parent ]

Others have rated this comment as follows:

melo 4
kcurie 4


Occasional Series