Markets have generally traded within narrow ranges. On the one hand, the reopening of economies has provided added impetus to artificially subdued economic growth. On the other, rising inflation poses the question of what central banks are going to do about it.
In the US, inflation is now running at 5.4% while in the UK it’s 2.5%. Ordinarily, the obvious course of action would be to raise interest rates but after 13 years of extraordinary monetary intervention, there is no appetite to adopt policies that could even vaguely be classified as ‘normal’. It’s quite clear they’re going to let inflation rise on the basis that its spike is temporary. The problem with inflation, though, is that its temporary nature can easily become permanent (or at least, semi-permanent). And regaining control of the situation from that position becomes much more difficult.
We have little faith in the wisdom of central banks and the people that run them. We suspect they’ll overcook this recipe, thus storing up even more problems for tomorrow. As an investor, it’s best to realise that you are on your own and invest accordingly. We remain committed to enterprises of substance with pricing power.