The shift from cash to stuff
I keep being told I worry too much about inflation. Given that the banking crisis never went away, that Europe’s implosion is closer than ever, and that low global demand is bound to hit oil and other commodity prices, I should surely be fussing about falling prices, not rising ones. But it isn’t the case that an underlying deflationary macro-environment precludes consumer price inflation. If it did, the UK Consumer Price Index (CPI) wouldn’t be rising at nearly 5% a year. The case for more inflation in Britain is based not on a sudden recovery of bank lending and consumer demand, but on several things. Think more quantitative easing (QE) here; more QE everywhere else; more global unrest causing a new hike in oil and gas prices or disrupting international supply chains; and more rises in food prices. Until two weeks ago, a pack of Sainsbury’s chipolatas weighed 400g and cost £2.59. Now a pack weighs 375g and still costs £2.59. That’s a price rise of 6.5%.
The general public at least are aware of some of this. A recent survey showed that, five years from now, 40% of people think UK inflation will be not 2%, but 10% (which is why 500,000 people invested in the now-withdrawn NS&I index-linked bonds). The question is when they might do something about it – because that’s when we might get the worst kind of inflation of all. Fear-driven, demand-push inflation. Let’s look at the rich. Consensus opinion notes that the rise in the price of London houses is all about foreigners looking for safe havens.
• Read the full editor’s letter here: The shift from cash to stuff.