25/01/2024
Inflation is Yet To Leave The Rear-View Mirror -
Over the last few weeks, we’ve seen a Yemen-based militant group, commonly referred to as the Houthis, attack shipment containers on the Red Sea.
The Red Sea is a crucial shipping route for global trade, and such disruptions have the potential to become a catalyst for resurging inflation - something the markets are desperate to avoid.
With a war which could escalate further and increasing inflation data figures from the Christmas spending season, perhaps the inflation worry isn’t in the rearview mirror yet as most initially declared thought.
Continued disruption would not be suitable for the major economies, so on the 12th of January, the US and UK decided to get involved with retaliation attacks (supported by a number of their allies) to force the Houthis into submission. Apparently, 60 targets across 28 sites were hit, and President Biden has stated that they are prepared to initiate further attacks if needed.
Although the Houthi attacks have yet to directly impact the markets, it’s important to note that the first inflation data reports of the year have shown a higher rise than initially anticipated across the US, EU, and UK.
Latest Consumer Price Index (CPI) Report:
US - 3.4% from previous 3.1%
UK - 4% from previous 3.9%
EU - 2.9% from previous 2.4%
This isn’t a cause to sound the alarm as with an increase in spending and celebrations over the Christmas period, an uptick in inflation was expected. Nonetheless, this shows how easily inflation can rise again and how important it is not to underestimate the challenges ahead for the central banks to reach that 2% target.
Food for thought:
1) How could the market react if we see fewer rate cuts than the economists predicted?
2) Is your portfolio positioned to handle the worst-case scenarios?
3) If inflation becomes more persistent and doesn’t fall quickly, could the ‘higher for longer’ narrative return to bite?
We might end up seeing rates stay elevated for a longer period and it is always good to take action on what you can see now rather than wait.
Cheers!
