Tag Archives: consumer price inflation

Consumer price inflation or house price inflation? UK has to choose

The perfect storm is brewing for UK inflation. Boris Johnson and his government will not admit it, but their choice of a hard Brexit will exacerbate price rises, on top of the effects of the Covid-19 pandemic.

This could put the Bank of England in the unenviable position of having to choose which bubble to burst: consumer prices, or house prices.

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Investors fear inflation but run to it

Recent capital flows highlight a paradox: investors are afraid of inflation, but seem to have increased their allocation to just the assets that would do worst out of it.

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Inflation is not transitory after all

“Transitory” is the preferred word to describe inflation these days. Central bankers love it, because it means they can continue their easy money policies. Investors love it, because it means the markets’ party goes on.

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To fight inflation, wealth needs to be taxed more

Even though the vaccines have the potential to reduce the Covid-19 pandemic to manageable levels, the scars will be felt for years to come.

Beyond the tragedy of the loss of human life, deepening inequality is perhaps the worst consequence of the pandemic. Governments around the world will seek to take steps to reduce it, fearing civil unrest.

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The bad type of inflation is here

Despite good news about vaccine roll-outs, it is too early to tell when or even whether economies will fully reopen and life will go back to “normal.”

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Look at Covid-19 vaccines to gauge inflation tantrum odds

With news of another Covid-19 vaccine on its way and optimism rising ahead of the end-year holidays, it looks like 2021 will shape up to be much better than 2020.

But one forgotten danger could spoil the party: inflation. Price rises are far from investors’ minds, but an ‘inflation tantrum’ could have devastating effects on various countries’ economies if they are not kept in check.

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Modern Monetary Theory is neither modern, nor new

If after the great financial crisis of 2007-2009 the word “extraordinary” characterised monetary policy, the Covid-19 pandemic calls for a much stronger adjective: “unprecedented”.

As the world has never before been faced with an instance when virtually all economic activity stopped for a certain period of time, this is an appropriate word. However, in monetary policy really very little can be said to be truly “unprecedented”.

For example, take modern monetary theory (MMT) — a theory about how to have your (monetary) cake and eat it, which (simplistically) states that if a country can print its own currency, that country will never default on its debt because it can create as much currency as it wants to and use it to pay back the debt.

Major central banks, to a certain degree, have already begun versions of MMT.

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Inflation is no answer to a potential Covid-19 debt crisis

As governments and central banks around the world throw money at their economies trying to mitigate the pernicious effects of the Covid-19 outbreak, debt is mounting at an alarming pace.

Once the first, acute phase of the pandemic-induced economic crisis ends, something will need to be done about this debt.

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If you are stockpiling ahead of Brexit, you need to stop

I know the chances of anyone paying attention to this article are slim, but it’s worth putting it out there nevertheless. If you are stockpiling to prepare for Brexit, as it increasingly is the fashion, you need to stop. You are doing yourself and the others around you more harm than good.

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Low interest rates threaten financial stability

When the bank of central banks warns about financial stability, you have to take notice — even if the warning comes in the Bank for International Settlements usually dry, academic style.

The BIS recently published a paper about the effect of prolonged interest rates on financial stability, and it makes worrying reading. (However, as most people are on holidays in August, unless they are reading it on the beach it will largely go unnoticed).

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