Chapter one in the inflation story was central banks’ failure to recognise the threat as they spent most of 2021 warbling about supply-chain shocks and “transitory” factors. Chapter two was the belated realisation that action was needed, followed by several yanks on the interest rate lever. Chapter three – scheduled to arrive about now – was supposed to be firm signs that the inflationary peak is in sight.
We’re not there yet. The shocker from the US on Wednesday was an inflation reading of 9.1% in June, a couple of notches higher than markets and economists had forecast. The US Federal Reserve’s promise-cum-threat to hike rates by 0.75% at the end of this month, after a similar move last month, now looks nailed on to be delivered in full. Cue another discomforting rise in the dollar, causing the euro to dip below parity for the first time since 2002.
The only consolation was the time-stamp on the 9.1% figure. A June reading didn’t capture the sudden 15%-20% fall in the price of many commodities in the past fortnight. Oil, the most important of the lot, was $118 a barrel in Brent variety on 26 June; now it is $99. That factor, at least, should dissuade the Fed from opting for a more muscular one percentage point hike on 27 July, or so the consensus now says.
But there was very little else to console investors. The detailed breakdown showed US inflation is much more than an energy and food phenomenon. Even excluding those elements, it is running at 5.9% and the other big question, beside the “peak” one, is how long it will take the Fed to regain control. The market sees US rates, currently 1.50-1.75%, reaching at 3.5% by the end of the year and going no higher, but that assumption suddenly feels less safe. We’re yet to see an inflation number that seriously surprises on the low side.
Even a few weeks ago, one optimistic school of thought was merrily looking forward to the supposed fourth chapter in this saga – the moment next year (some said spring) when the Fed could declare that inflation had been tamed and could set about reversing its rate hikes. Such happy thoughts now feel several jumps ahead of events.
Glass half empty at Wetherspoon’s
The last round of updates from the pub sector was far from cheerful but at least the bosses tried to see their pint glass as half-full. Back in May, Mitchells & Butlers and Marston’s grumbled about the rising cost of energy and food but both also tried to sound upbeat about demand. “Trading remains stable,” said Marston’s chief executive. “We are encouraged by the improvement in sales trajectory,” said M&B’s.
Wetherspoon’s, by contrast, gave the half-empty version on Wednesday. Overall sales are back (just) at pre-pandemic levels, but the complaint about “far higher” labour costs was accompanied by fewer rosy notes. A prediction of a break-even position was replaced by a warning to shareholders to expect a loss of £30m in the current financial year.
Wetherspoon’s shares fell 8% to 577p. In April 2021, they were £14, which illustrates how far post-lockdown trading has disappointed. “Recovery for many companies has been slower and more laborious than was anticipated,” said founder and chief executive Tim Martin. One of those companies is presumably Wetherspoon’s itself.
Naturally, Martin also delivered his standard sermon about the wickedness of the tax disparity between pubs and supermarkets, but his real insight may be the one about the effect on the pub trade of working-from-home patterns. Clearly something big has happened when sales of draught ales, lagers and ciders are down 8% versus 2019 and cocktails are up 18.6%. That shift will look alarming when beer is the core product.
Why the delay for Morrisons takeover?
The Competition and Markets Authority’s investigation into Morrisons’ purchase of 1,100-strong convenience store chain McColl’s should not be a complicated affair.
McColl’s was virtually bust. Rescue by Morrison’s should save most of the 16,000 jobs. Consumers won’t get less choice because McColl’s was already getting most of its stock from Morrisons. And, since the supermarket chain is number four in the UK market, Tesco et al will not be quaking in their boots. Just clear the deal.
The real question is why it will take the CMA until September to reach the obvious conclusion. The takeover was announced in May, which is already a long time to make McColl’s staff and management wait for their rescuer to get to work.