They nod along because they have, indeed, already begun to feel the pinch of higher costs. The next day, they go to their jam shop, pull out their pricing gun and discuss how high they should raise their prices to offset their rising costs. They dismiss hiking their prices by just 10 per cent because, after all, inflation is still rising; they do not know where it will end and they do not want to have to get their pricing gun out again any time soon.
Meanwhile, they see that the clotted cream seller across the street has risen her prices by 12 per cent. And, of course, there is no afternoon tea without clotted cream and jam, so they decide they can get away with raising their prices by 15 per cent.
Now, imagine this conversation is going on up and down high streets across the world. All over the globe, pricing guns are going off as people make a guess about how high they will be able to raise their prices without impacting demand.
With US inflation already at 6.8 per cent, the turbo-charger effect raises the real possibility of inflation hitting double digits before it eventually recedes.
As we look forward to the Christmas break, I hope I have not made it feel too much like Halloween. In fact there is much to be positive about as we look towards 2022, but I hope I have, nonetheless, made the case against complacency where inflation is concerned. I encourage investors to take a close look at their portfolios in light of all that we know – and all that we do not know – about the economic environment we are in.
Andrew Jackson is head of fixed income at the international business of Federated Hermes
