Another month, another Covid variant. To date, each new strain has caused less economic damage than its forerunner. Whether Omicron follows this pattern remains to be seen although anecdotal evidence suggests that while it appears more infectious, it is ultimately less dangerous to vulnerable patients. It is, of course, entirely predictable that the virus is mutating. It’s a process without end but we do question how much longer regular mass inoculation can continue for. Eventually, the best defence must be herd immunity; a process strengthened by high rates of vaccination, though not a substitute for it.
So far, markets have been sanguine concerning the emergence of Omicron. The response hasn’t been too different regarding rising inflation, despite the fact it is now clearly out of control in most Western style economies. In the US, it’s touched a 40 year high at 6.8%. In the UK, the Consumer Price Index (CPI) is running at 5.1%, the highest for a decade. The government and the Bank of England prefer to quote CPI rather than RPI (Retail Price Index), believing it to be more representative of the cost of living as it excludes housing costs. It will come as no surprise to those capable of independent thought that RPI is currently running very hot at 7.1%.
In the Eurozone, the situation is similar; prices are rising at an annualised 4.1%, yet the European Central Bank is operating with a deposit rate of negative 0.5%. Our only advice is to ignore the comments of such institutions when they argue inflation is transitory. It isn’t; only denizens of Davos summits cannot see it.