Investors are still in denial about inflation and interest rates

There are worrying signs that inflation is becoming embedded in the economy, but many investors are struggling to adjust to the new reality.

Stockholm
The percentage-point interest-rate rise in Sweden was the biggest since the 1990s
(Image credit: © Getty Images/iStockphoto)

“Central bankers are in an unenviable position,” says Ben Wright in The Daily Telegraph. “They must choose between death by a thousand price rises or the electroshock therapy of massive interest-rate hikes.” There are worrying signs that inflation is becoming embedded in the economy. UK service-sector inflation hit 5.9% in August, threatening a “wage-price spiral”. Even if headline inflation does peak soon, it could then stay “well above central bank targets for much longer than previously hoped”.

With energy prices falling, concern on both sides of the Atlantic has shifted towards core inflation, the measure that excludes volatile food and energy prices, says Hermione Taylor in the Investors’ Chronicle. The UK’s costly “new energy-price scheme means that the inflation outlook has materially improved”, banishing talk of 20%+ consumer price inflation.

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Markets editor

Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019. 

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere. 

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful. 

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.