Apparently Nationwide are starting to offer mortgage deals whereby you can lock into a fixed rate for 25 years. So you could be paying 5.5% until 2030 and beyond.
Unless they have found some foolproof way to hedge the risk, this strikes me as insane.
If current trends (money supply growth, commodities getting scarce, Asian expansion) continue, I can easily see inflation above 10 per cent by the end of the decade. And interest rates have to keep pace with inflation.
Of course, some people are saying inflation is already at 10 per cent, and that the official figures are misleading. The problem is, when you average two very different values the result is sensitive to your method of averaging. And we have two effects at the moment in different directions:
1) cost of Western labour has been going up (school fees, medical fees, taxi fares, etc.)
2) cost of Eastern-produced goods has been going down (TVs, pots, computers, socks, toys, mobiles, shirts, etc. etc. etc.)
Thought for the day: what happens if the West wakes up one morning and finds China has decided to revalue the renminbi by (say) 8 per cent? What is the impact on the prices of imported goods? And hence on inflation? An overnight hike?
