Inflation has returned – and it will get worse
Signs of inflation are everywhere. And companies around the world are already raising prices as the price of raw materials climbs.
The US government is running “an inflation experiment”, says The Economist. President Joe Biden is pushing for $4trn of new spending on infrastructure and social programmes. On the monetary front, the US Federal Reserve is more relaxed about inflation exceeding its target of around 2% than it used to be.
The Fed learns to love inflation
America’s consumer price index (CPI) rose by 2.6% on the year in March. The monthly increase of 0.6% was the biggest in nearly a decade. UK inflation has been more subdued but is also heading higher; prices rose by 0.7% in March year-on-year, with inflation forecast to hit or breach the 2% target by the end of the year.
The US economy is booming, expanding at an annualised rate of 4% in the first three months of the year and likely to grow even faster in the current quarter. Yet the Fed has refused to cut back on crisis measures, especially its $120bn in monthly quantitative easing (QE)-funded asset purchases.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
That is partly because Fed chair Jerome Powell is waiting for employment to recover, says Justin Lahart in The Wall Street Journal. There are still 8.4 million fewer American jobs than before the pandemic, although recent jobs growth has been impressive. He also insists that current inflation is “transitory”, driven by growing pains as the economy reopens and a weak comparison period last year.
Many investors remain relaxed: they think Powell will rein things in if inflation really surges. But the Fed has made it clear “that it is in no hurry to tighten”. They should listen to what the Fed actually says, not what they wish it would say.
Big Business hikes prices
Signs of the new inflation are everywhere, says Jeremy Warner in The Daily Telegraph. Copper prices have topped $10,000 a tonne for the first time in over a decade, shipping rates have soared and computer chips are hard to come by. The unprecedented scale of fiscal and monetary stimulus in the rich world will turn into inflation once economies fully reopen.
Firms are already hiking prices, say Judith Evans and Emiko Terazono in the Financial Times. Consumer goods giants such as Nestlé and Unilever point to soaring input costs. Palm oil prices have doubled since spring last year. Packaging costs are up by almost 40% since the start of 2020. In Europe, milk prices have soared by about 50% so far this year. Consumers had been insulated from these price surges because big firms use hedging contracts to keep their input costs predictable. Yet as those contracts expire prices will climb.
US executives have mentioned the word “inflation” more frequently in their latest earnings conferences than at any time since 2011, says Lu Wang on Bloomberg. Not that they’re worried: the net margin of S&P 500 firms has hit its highest-ever level, according to Bank of America. That is a testament to the pricing power of big business, which is able to pass higher costs directly onto customers. For now at least, corporate earnings are thriving in the era of higher inflation.
-
House prices are falling in London but how does it compare to the rest of the UK?
Advice The capital remains the most expensive part of the UK to buy a property, but it isn’t being as badly hit by the housing market slump. Where are London house prices heading?
By Marc Shoffman Published
-
Will a Santa Rally provide festive cheer for investors this year?
News Equities often get a seasonal boost during December - will there be a Santa Rally in 2023?
By Marc Shoffman Published
-
Can Lidiane Jones be Bumble's perfect match?
Dating app Bumble is taking on Lidiane Jones, a well-regarded leader in tech, as its new boss. Can she work her magic in a new arena?
By Jane Lewis Published
-
UK millennials are worse off than previous generations
The evidence shows that millennials today are getting a raw deal. And, ultimately, that's a political choice.
By Simon Wilson Published
-
The rise and fall of Sam Bankman-Fried – the “boy wonder of crypto”
Why the fate of Sam Bankman-Fried reminds us to be wary of digital tokens and unregulated financial intermediaries.
By Jane Lewis Published
-
The jury's out on the AI summit at Bletchley Park
World governments gathered for an AI summit at Bletchley Park in November, but were they too focused on threats at the expense of economic benefits?
By Simon Wilson Published
-
As a market correction begins, money is on the move.
The force of a market correction is equal and opposite to the delusion that preceded it, so we can imagine that the correction will also be unparalleled.
By Bill Bonner Published
-
How small businesses can retain staff in a competitive job market
Small businesses are struggling to retain staff and compete against large companies with deep pockets.
By David Prosser Published
-
The French economy's Macron bubble is bursting
Cheap debt and a luxury boom have flattered the French economy. That streak of luck is running out.
By Matthew Lynn Published
-
K-pop hitman Bang Si-hyuk aims to repeat BTS phenomenon
Bang Si-hyuk created the world’s biggest boy band, BTS, making K-pop music a global sensation and himself very rich. Can he repeat the trick with a girl band?
By Jane Lewis Published