Stayflation has arrived

The UK population in the last couple of years has been forced to accustom itself to a new and unwelcome set of words - the "cost of living crisis". Since 2021 the prices of many essential goods have risen faster than household incomes. Consumer confidence in early 2022 was at its lowest level in more than 30 years. It's barely recovered since then.

Matters are not improving. The latest UK inflation figure, for August, was 3.8%/year. That's almost double the Bank of England's (BoE) target for inflation, of 2%/year. But that 3.8% is obviously an overall average figure - some individual food items shot up by much more. Beef and veal prices went up by almost 25% and coffee by more than 15%.

We need a new word to describe what's going on. Stayflation will perhaps do - inflation is staying put. It's no surprise therefore that the BoE has left interest rates at 4%. No surprise - but maybe a shock.

It's a shock because the UK needs a kick to prevent its economy from collapsing. Unemployment is almost 5%. Economic growth for the three months to July was almost zero. Millions of potential workers aren't even seeking a job but subsist on welfare payments. The British Chancellor, Rachel Reeves, has said the British economy "isn't broken. But I know it's not working well enough for working people." She will announce a new government budget on 26 November. Most bets are that taxes will rise.

The US chooses different

The US Federal Reserve has shown a different spirit to the BoE. It's cut the benchmark federal funds rate to 4%-4.25% this week. This was the first rate cut since last December; the expectation is that the Fed will further reduce by 0.5% before the end of 2025. This was despite a slight shift higher in consumer price inflation, from 2.7% in July to 2.9% in August.

Justifying the cut the Fed chairman, Jerome Powell, said the bank does not expect a "persistent inflation outbreak" and the "labor market has softened". Only 22,000 jobs were added in August. Between April and July this year the US labor force shrank by almost 800,000 workers. As the labor market seems weaker than ideal, the Fed has made borrowing cheaper.

But the softening jobs market has more to do with the President's determination to reduce the size of the immigrant labor force than anything else. If he succeeds with that policy it will have serious impacts on many sectors, especially building. About 34% of US construction workers are immigrants; in certain trades, such as plasterers, that share is almost 60%.

A shortage of skilled labor already costs the US economy almost $11 billion/year and pushes up the cost of new single-family homes by around $2,600 on average. That cost - and others - are bound to rise in the coming months. Stayflation might be a US headache too.

Say no to stayflation

In eight months the US President has blitzed the world economy. What the rest of his term might produce is anyone's guess. But past certainties no longer exist.

Globalisation is over, NATO is without the certainty of its super-power, the Dollar's international status has been undermined, authoritarianism has re-entered political life. The borrowing by governments in large countries, the accumulation of vast debts, is starting to be questioned. In France for example the failure to deliver a balanced budget since 1974 is now causing political turmoil. We have lived through years of security. No more.

The end of this system of international order carries with it a return to global uncertainty. Stability is getting more rare, and fiat currencies will lose their clout. Gold is the answer to such mayhem. With Glint, gold has returned as money. Whatever may turn out to be our uncertainty, Glint provides a wall - the wall of stability.

For UK clients: At Glint, we make every effort to demonstrate a balanced conversation between gold, silver, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

For US clients: Graphic representations of value are for illustrative purposes only. The Glint debt card is issued by Sutton Bank, member FDIC. The sale, purchase and storage of precious metals are offered by Glint and not Sutton Bank. Your investment in precious metals through Glint is

·        Not insured by the FDIC.

·        Not a deposit or other obligation of, or guaranteed by, Sutton Bank.

·        Subject to investment risks, including the possible risk of loss of the principal amount invested.

All investments involve risk, including possible loss of principal. The value of precious metals is affected by many economic factors, including but not limited to the current market price, demand, perceived scarcity, and quality of the precious metal. Precious metals can increase or decrease in value. Past performance is not a guarantee of future results. As such, investing in precious metals may not be suitable for everyone.