I have good and bad news about the outlook for living standards.
The good is that sometimes investors – markets – are spectacularly wrong.
An egregious example in the past few days is that prices in the so-called Overnight Indexed Swap market have been signalling there could be a painful four interest rate rises over the coming nine months, to curb the inflation caused by Trump’s Iran war.
This has infuriated the executives and experts on the Bank of England’s Monetary Policy Committee, led by the governor Andrew Bailey.
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His expectation, as I understand it, is that the most likely path for interest rates in coming months is they stay where they are. And since the bank set interest rates, that sort of matters.
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The point is that Trump’s war makes everyone so gloomy that the disinflation from a slowing economy will take the edge off the inflation caused by the oil price surge.
The bad news is bad though.
It’s that oil and gas prices will remain elevated for months, even if Trump’s putative peace talks aren’t a figment of his imagination. Too much damage has already been done to energy infrastructure, and the Hormuz Strait won’t be re-opened quickly
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So the risks are serious of disrupted supply chains, contagion to critical manufacturing, rising food prices and even worse financial markets chaos, with the private credit market looking increasingly vulnerable.
Trump has been the bringer of this mayhem. Maybe don’t send him an Easter Egg.
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