15th July 2021
Good morning The ex-chairman of Nissan, Carl Ghosn, has revealed how he fled Japan to Lebanon hidden in a box in order to avoid financial misconduct charges. A Hollywood film based on this story has surely got to be in works.
- UK inflation hits 3 year high
- The (micro)chips are down
Yesterday's market moves
FTSE 100 -0.5% 7,091
FTSE 250 -0.8% 22,750
UK markets dipped as the two major concerns of inflation (more below) and the spread of the Delta variant of Covid-19 weighed on investors.
UK inflation hits 3 year high
What’s going on?
June inflation data from the Office for National Statistics (ONS) showed that UK prices rose 2.5%, the fastest rate since August 2018.
This was higher than the 2.2% economists expected and above the Bank of England’s 2% target.
Why is this important?
Rising prices were seen across a wide range of categories like petrol, food, second-hand cars, clothes and eating out. This isn’t surprising as the demand and therefore price of these goods fell a year ago but have now bounced back as the UK economy reopened from lockdown.
This trend has led many economists to believe that price rises are temporary and will settle once the world returns to normal.
On the flip side the price of games and toys fell reflecting the fact that demand for these items went up last year when the country was in lockdown but has come down now that restrictions have lifted.
Earlier in the week the US reported that its inflation reached a 13 year high at 5.4%.
Inflation is the hot topic of conversation among policymakers and investors worldwide. The debate is whether central banks should step in to temper prices – by raising interest rates – or trust that prices will cool themselves and therefore not intervene.
Central banks and investors are concerned that rising interest rates too soon could hinder economic recovery.
So far the Bank of England has determined that the price rises are temporary so hasn’t changed interest rates from the record low of 0.1%. Other central banks in the US and EU have also agreed with that approach so far.
The (micro)chips are down
We are in the midst of a global shortage of microchips - the essential components in the “brain” of every electronic device in the world.
It started off as a Covid related supply problem with factories shutdown across the world due to the pandemic but now it’s become a longer term issue.
Production is back to normal as factories have reopened but demand for chips has boomed driven by:
- Car manufacturers investing in electric vehicles.
- Rise in sales of TVs and laptops fuelled by home working.
- Launch of new games consoles and 5G mobile phones.
The shortage is having knock on effects on some of the world’s largest companies:
- Applethe world’s biggest buyer of microchips – spending $58bn a year – was forced to delay the launch of the iPhone 12 by two months in 2020 because of the shortage.
- Sony has warned it may not hit sales targets for the new PS5 console this year because of chip supply problems,
- Samsung, the second biggest producer and consumer of chips in the world, said it might have to postpone the relaunch of its high-end smartphone.
But it’s the car industry that’s really feeling the brunt of the shortage.
Jaguar Land Rover and Mercedes-Benz are just some of the big names who have announced that they will fall short of their output targets because they can’t get their hands on enough chips. It’s been estimated that global car sales will be 5% lower this year as a result.
Chip factories are highly complex to build and take up to two years to get up and running. It’s been forecast that it might not be until 2023 when there will be enough supply to match demand.
Stat of the day
54% of Americans live pay cheque to pay cheque
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