Inflation’s ‘team transitory’ is a shrinking breed. Ever since huge stimulus packages were announced in 2020, and the effects of supply chain issues became clear, central bank inflation predictions have consistently undershot reality – and that was before Russia’s war on Ukraine and all it entails.
In February 2021, for example, Federal Reserve chair Jerome Powell said that it could take three years for the US to reach its 2 per cent inflation goal. Further back, in late 2020, the Fed had suggested it would not raise rates until the end of 2023. But US inflation had hit 7 per cent by December 2021 and the Fed raised rates last month, with officials hinting that six more rises could take place this year.
Last August, meanwhile, the Bank of England forecast the UK consumer price index would peak at 4 per cent in 2022. By the end of last year it had already hit 5.1 per cent. The Bank now anticipates that inflation will hit 8 per cent in June – exacerbated by Russia’s invasion of Ukraine, which has caused an energy supply shock and put further pressure on global supply chains. No one knows how price growth will play out, but in the near term it poses a significant threat to the value of your savings.