The chances are, you’ve read enough press coverage about inflation in recent days to last a lifetime. However, the impacts of the current market situation are going to be felt by everyone and so we felt it was important to add our own input on the subject.
You may remember that we mentioned fear of inflation as one of the reasons why the stock market has endured a tough time so far in 2022. Well, those fears have been realised.
Whilst talking about how they are approaching the challenges associated with inflation and rising interest rates, a fund manager recently used this graph to illustrate the situation.
The different colours represent different commodities that we all spend money on. The earliest data is from 2018 and you can see where we are now, in early 2022, on the right.
There’s a clear and steady decrease in inflation (y/y growth) until the end of 2020, at which point it skyrockets to its current high of 5.4.
Energy prices are included within the services sector – the drop in oil and gas prices as the pandemic hit (remember when oil was briefly trading at a negative price?!) can be seen, as well as the alarming rise over recent months.
Food prices have also risen significantly (well above pre-pandemic levels) and I’m sure you’ve noticed the difference when you fuel up your car or do the weekly shop. In fact, everything has risen significantly.
I’m no Mystic Meg, so I unfortunately can’t predict what is going to happen next. But it seems unlikely that inflation will drop back down again in the immediate future with estimates of it reaching 7% by April despite recent increases to interest rates.
Having said all this, investing is a long-term approach and our advice to everyone right now is to hold tight and ride out this bumpy patch. Despite the markets falling, data suggest that the major economies are continuing to grow and strengthen (albeit at a reduced rate) as we learn to live with Covid-19 as an ongoing feature of our lives.
Finally, if you’re wondering how our other European neighbours are addressing the energy inflation problem, this (paywall-free) Guardian article is worth a few moments of your time.