I finished work the other evening and was in the mood for a mango salad. So, full of anticipation, I stopped by my local grocers only to be met by a horrible sign. Mangoes: £2.40. Each. What? Since when? Since inflation started spiralling out of control, that is.
Chinese price rises are the latest big figure to spook us, with inflation jumping to 32-month highs at 5.4 per cent in March. As a viewer rightly pointed out the other day, we now follow Chinese inflation much more closely than US inflation.
The Beijing authorities have been putting a lot of effort into cooling down their economy’s still rapid expansion. China is the second-largest consumer of oil, but with its strong growth story continuing, Beijing may be forced to hike interest rates again to attempt to slow consumption just a little bit more. Yesterday, the Chinese central bank announced that reserve ratios will rise 0.5 points from 21 April, taking the requirement to a new record for big institutions.
But it’s not just China. Despite the Reserve Bank of India having raised rates eight times since March 2010, they may have to hit the markets again, this time with a bold 0.5 per cent rate hike in early May to combat inflation of nearly nine per cent.
In the Eurozone, inflation is at a fresh 29-month high of 2.7 per cent, with a record increase in March. And in Britain, although March showed a fall in CPI inflation to four per cent, economists still think it will rise over the next few months, maybe even hitting the five per cent mark within the year. In the US, while prices still are on an upward trend, analysts think subdued labour costs will keep a lid on inflation. There the issue instead seems to be centered on what the Federal Reserve should do once its $600bn asset-buying scheme comes to an end in June, and how the market will react to having stimulus withdrawn.
EURO CURRENCY WOES
Do keep your eyes on the currency markets. We have become immune to European debt worries, but with its latest downgrade, Moody’s now has Ireland below the levels assigned by both Fitch and Standard & Poor’s and that is putting a bit of pressure on an otherwise resilient euro.
More worrying, short-dated Greek bond yields have been spiking to record highs despite the authorities denying that an imminent debt restructuring was on the cards.
This has also been adding to some nervous euro trades. But, for now, the currency trend is still intact.
Currency analysts tell me they think the euro will continue to be supported against sterling on expectations that the European Central Bank will hike rates before the Bank of England. The US Fed doesn’t seem to be in a hurry to hike rates either, helping the weak dollar story stay intact. But it is definitely a case of watch this space.
Louisa Bojesen co-anchors European Closing Bell weekdays on CNBC.