Join our community of smart investors

The taming of inflation

The OECD is predicting a pretty dire growth rate for the UK next year, the worst in the G20 apart from Russia. And it is laying this at the door of our high inflation rate and high tax burden. 

We won’t know what the latest inflation numbers are until 22 June but Huw Pill, chief economist at the Bank of England, is concerned about inflationary psychology taking hold – with high inflation becoming embedded in wage and price setting behaviour. We should all fear this. A colleague recounts how her local taxi firm quoted £300 for a round trip that previously cost at most £120. I don’t doubt that the hike reflects problems faced by the company regarding staffing, fuel, vehicle costs and so on. But if a taxi firm can charge what it likes, it suggests a momentum that will be difficult to harness and tame. 

The Bank of England expects inflation in the UK to hit double figures by the end of this year before returning to its 2 per cent target by 2024. Is this wishful thinking? A suppression tactic? Is it likely to happen? Given how important the inflation question is to the decisions made by businesses, savers and investors (although there is evidence that inflation makes little difference to equities over the long term – see Bearbull), it’s worth exploring this further.

To continue reading...
Join our Community of Smart Investors
  • Independent full-length company analysis
  • Actionable investment ideas and recommendations
  • Expert investment tools and data
  • Stock screens from Algy Hall
Have an account? Sign in