Month: November 2021

Turkey’s Inflation is Out of Control

The lira has lost more than a third of its value in the last eight months due to concerns by both investors and savers over premature monetary easing and inflation soaring to near 20%, both of which have eaten deeply into Turks’ earnings. Inflation is four times the official target and has lingered in double-digits for most of the past five years. The lira depreciation also pushes prices higher in Turkey via imports.

Where next for Interest Rates?

CPI inflation in the UK is running at 3.1% and the Bank of England expects it to peak at 5% near year. That’s more than double our magic number – so you’d think that rates would be on the up at some speed. Yet despite heavy hints from various policymakers that we would on Thursday see a rise from the lowest-ever base rate of 0.1% to 0.25% we saw no change.

There is some sense in this. The inflation we see at the moment is based on supply problems, rising energy prices and increased labour costs. A 0.15 percentage point rise in interest rates can’t do much to help with these things. And if they are related in the main to pandemic policies and are therefore temporary anyway, why not just ignore them – and let inflation naturally fall back to earth next year as shortage turns to surplus?

Money Week

What can happen to inflation?

Zimbabwe stocks have paused for breath after soaring about 370% in 2021, a breakneck rally spurred by investors turning to the bourse as a haven against inflation.

Harare’s All Share Index posted a rare, four-day decline last week, with local market watchers saying the eye-watering gains had become overdone and a pullback was needed. “The market does seem to be cooling off,” said Thedias Kasaira, managing director at Imara Edwards Securities.

The excessive increase in share prices was captured in at least one technical indicator: the 14-day relative strength index on the benchmark Harare stock gauge peaked at almost 99 on October 21, when stocks took their gains to 367% since the start of the year. That’s well above the level of 70 that some technical analysts see as suggesting a market has risen too far and may be about to swing lower.

To be sure, it seems stocks may soon resume their ascent, given that investors have few other options and locals with cash prefer to buy shares to avoid their money losing value. Annual inflation in October quickened to 54.5% and the central bank last week raised its main lending rate to 60% in an attempt to tame that increase and to stabilize the free-falling Zimbabwe dollar.

“Inflation is beginning to tick up again, there is clearly anxiety around exchange rates and no real conviction from a policy perspective from the authorities, despite some cosmetic attempted solutions,” said Lloyd Mlotshwa, head of research at Harare-based IH Securities. 

“That usually points to investors slipping back to hedging mentality,” he said. “The only available legal and viable assets are really equities and property. Equities, at the very least, give you liquidity to enter and exit.”

News 24

Where next for government spending?

An economic slow-down next year could turn into recession, exacerbated by tax increases and productivity-sapping government spending. The funding of social care hasn’t been resolved; the problem has merely been postponed. The NHS consumes ever increasing amounts of taxpayers’ money with little to show in terms of improving outcomes. The funding of a bloated higher education sector through loans that will never be repaid has been a financial disaster. Badly-needed changes to business rates and housebuilding have been kicked into the long grass.

Money Week