Stock markets have reacted badly to inflation figures from the U.K., U.S. and Eurozone. We’ve commented previously about the groupthink that now infests central banks and policy makers, in general. A cozy consensus was emerging that falling inflation would pave the way for rate cuts but inflation, while sharply lower over the past 12 months, is proving a little sticky on the downside and this is before taking account of the inflationary effects of Houthi attacks on shipping in the Red Sea. The latter affects not just energy cargoes but all those consumer goodies coming from the Far East, too. Diverting around the Cape of Good Hope adds approximately 9 days to journeys to Europe and North America and $1m to the fuel bill.
It is our belief that developed world economies are now much more prone to inflationary pressures than previously. Governments are debt laden (the U.S. is now spending 20% of its revenue on interest payments, alone) and we are in the midst of an energy transition that is not only eye wateringly expensive but from a calorific generation perspective, is nowhere near as efficient as the one it is attempting to replace. All against the background of growing world energy demand ……
