Is inflation a “tiger” or a “pussycat”? asks Gurpreet Narwan in The Times. Andy Haldane, the chief economist at the Bank of England, has warned that UK consumer price inflation will soon spike from its current level of 0.7% as the economy reopens. Haldane likened inflation to a “tiger” that has been “stirred by the extraordinary events… of the past 12 months”. It could prove “difficult to tame”. Not all of his colleagues agree. Deputy governor Dave Ramsden notes that UK inflation expectations (as measured by surveys) remain “well anchored” for now.
Bond markets totter
The FTSE bounced back 1.3% on Monday, generating “a huge sigh of relief”, says Russ Mould of AJ Bell. Progress on Joe Biden’s $1.9trn stimulus bill (see page 10) soothed markets. Bond yields settled, with the US ten-year trading around 1.4%, calming fears that last week’s yield tantrum could precipitate an even larger rout.
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
The bond yield spike shows that markets disagree with the US Federal Reserve about the economic outlook, says Eoin Treacy for fullertreacymoney.com. Fed chair Jerome Powell insists that the recovery is shaky, pointing to high US unemployment. That means interest rates will need to stay low for a long time. Investors, by contrast, increasingly think we are heading for a swift reflationary recovery. That would drive inflation higher and force the Fed to hike interest rates sooner rather than later.
Swinging back to the sixties
Expect more “turbulence”, says the Financial Times. Investors have grown so accustomed to ultra-low interest rates and quiescent inflation that even a modest shift to a “higher-rate, higher-inflation regime” could unleash “cascades of repricing” and “swingeing losses” for portfolios. “In truth, this is a good news story”; markets are anticipating a robust recovery and higher but not uncontrollable inflation. Inflation doves point out that massive quantitative easing (QE) after the financial crisis did not bring higher inflation, say Michael Bordo and Mickey Levy in The Wall Street Journal. But where that cash ended up as “excess reserves that sloshed around” the banking system, this time stimulus is far bigger and more direct – state cheques have been paid straight to US households.
“There is a long history of high budget deficits” heralding inflation; inflation began to tick up in the mid-1960s but governments on both sides of the Atlantic kept on spending, which led to crippling stagflation that blighted Western economies until the 1980s. It can be a surprisingly “short march” from low inflation back to high inflation.
-
Defeat into victory: the key to Simon Wolfson's successOpinion Next CEO Simon Wolfson claims he owes his success to a book on military strategy in World War II. What lessons does it hold, and how did he apply them to Next?
-
Aircraft leasing companies can lift investors' portfoliosThe aircraft leasing business is a safer way to cash in on air travel and its booming demand. David Prosser explains how it works and how to access it
-
Defeat into victory: the key to Next CEO Simon Wolfson's success
Opinion Next CEO Simon Wolfson claims he owes his success to a book on military strategy in World War II. What lessons does it hold, and how did he apply them to Next?
-
How to find value in Asian small cap stocksThree competing Asian investment trusts all have good records, but this one is the obvious choice at present, says Max King
-
The battle of the bond markets and public financesAn obsessive focus on short-term fiscal prudence is likely to create even greater risks in a few years, says Cris Sholto Heaton
-
'Rachel Reeves’s tax rise will crash the economy'Opinion Rachel Reeves will be the first chancellor since Denis Healey in the 1970s to raise income tax. It will only push Britain into recession, says Matthew Lynn
-
Cringe Britannia: the decline of the UK's soft powerBritain has long wielded soft power through its commitment to sound political values and the export of high and popular culture. That is now under threat
-
'We still live in Alan Greenspan’s shadow'When MoneyWeek launched 25 years ago, Alan Greenspan was chairman of the Federal Reserve. We’re still living with the consequences of the whirlwind he sowed
-
Go for growth: how to invest in emerging marketsDeveloping countries offer investors compelling long-term economic prospects, says David Prosser
-
Isaac Newton's golden legacy – how the English polymath created the gold standard by accidentIsaac Newton brought about a new global economic era by accident, says Dominic Frisby
