The retail prices inflation hit 3.7% it was announced yesterday.  If you round that up that is 4%.  The retail price inflation is the stat that is used in wage negotiations.

 

This is very significant.  This is because higher wages mean:

 

1. Higher borrowings due to the amount you can borrow to buy a home being a multiple of wages
2. Buyers given the ability to bid up prices in effect 3.7% higher
3. Existing debt will shrink as a result of the wage increases

 

Now I am talking about owner occupiers here.  They make the bulk of the market and have the biggest significance in setting house prices.  Us investors hardly get a look in when a First Time Buyer (FTB) is about.

 

FTBs do not know anything about:

 

Yield

Return on capital employed

Positive Cashflow

Making money

Etc.

 

They earn a wage and want to spend it.  If they like a property and they can afford it then they will buy it simple.  And so it should be.  When I have bought my own house to live in I NEVER did any kind of calculation on yield etc.  I wanted the property so I bought it.

 

So owner occupiers can if they want, when their wages go up, can climb the property ladder and get something better.  As long as credit is flowing (Hmm not so sure about that!) then we will see a swift increase in prices.

 

So when you see petrol prices break the £1.30 barrier per litre look at it with a different view point.  It means that the Retail price inflation will go through the roof along with wages and ultimately property prices. 

 

There you go.  I have just cured you of that aching feeling when you go to fill up your car with fuel and are lucky to get change from £90!

 

So come on guys: BRING ON THE INFLATION TO DOUBLE DIGITS (10%+).

 

Speak soon.

 

Ajay

 

PS If you want to speak to my team do so!

Posted on: 17th Feb 2010