US inflation biting us all
Anyone looking for a shard of light in the latest US consumer prices data will latch on to the idea that crisis one – the supply interruptions after Covid – is in retreat.
Less comforting is that crisis two – war on Ukraine – is in its infancy.
As europe seeks to lower dependency on Russian oil and gas, the cost of living will rise. US supply chains from the Far east are easing, with port congestion dissipating.
Clothing prices dipped by 0.8pc (comfort perhaps for UK consumers) and used car values are slipping as production of new motors ramps up.
nevertheless, the warning from President Joe Biden that fighting inflation is the ‘top economic challenge’ was a message reminiscent of Jimmy Carter’s campaign against inflation in the 1970s, which eventually saw him tossed out of office.
US headline inflation may have eased down from 8.5pc to 8.3pc in April but pressure on the real incomes of Americans is unforgiving.
energy costs eased a tad and the US is far less exposed to global prices than europe. Biden has reduced the pressure by releasing oil supplies from US reserves. The biggest price rises are in air fares and hotel rates. All of this portends that the Federal Reserve will remain firm with signals that its chairman, Jay Powell, will raise rates by 0.5 percentage points at each of the next two meetings.
There is even speculation that he might strike hard earlier with a 0.75 percentage point jump between formal meetings.
The markers are not confident that Washington has the measure of the cost of living threat, and the yield on ten-year US Treasury bonds is back above 3pc.
The european Central Bank, which has been cautious about raising rates because of fragile output, is now being more specific about next actions. Its chief, Christine Lagarde, is signalling a quarter-point rate rise in July to combat the eurozone’s 7.5pc inflation. none of this is much comfort to the UK, except as a reminder that almost all Western nations are in the same boat.
The tumble in sterling to below $1.23 is another dark cloud as it represents a further price shock for importers.
Trading places
THe last thing the London Stock exchange needs is another public-to-private takeout bid. Homeserve has had its ups and downs but it revolutionised the emergency repair market in Britain and is doing the same in the US.
It could be heading for the exit if Canadian asset manager Brookfield, a big investor in Canary Wharf, wins approval for a bid worth around £4bn (at the current depleted exchange rate). The deal, if completed, would make founder Richard Harpin and his family half-billionaires.
When I met Harpin this year he was as buoyant as ever about prospects. The creation of the interactive website Checkatrade sought to provide consumers with tradesman they could trust and is an online pioneer in a field notable for cowboys.
He also was enormously excited about the way in which Homeserve was making headway in the US through alliances with a growing number of utilities. Harpin indicated that when he retired or stepped down as chief executive, Homeserve was likely to be run from north America by the head of its operation there, Tom Rusin.
The sale of Homeserve may not appear to breach the UK’s economic or national security. But like all disposals to overseas financial buyers it depletes the FTSe, sacrifices British corporation taxes and places the headquarters jobs and services at risk.
As an entrepreneur Harpin should think hard about tamely surrendering independence. At the very least he, his advisers and board should seek to stimulate an auction.
American pie
Unless you are an energy producer surprises on the upside are rare at present.
Dominic Blakemore at food services champion Compass is defying the odds.
Revenues zoomed back to pre-pandemic levels in the first half, at £11.6bn, and fullyear guidance was raised.
Smart sourcing means it is able to provide catering services to returning-to-work businesses without having to pass through the full horror of high street prices.
The shares spurted up 7.4pc yesterday in tricky conditions.
A stream of acquisitions in the US has demonstrated that ‘over there’ can be fertile ground for UK enterprise.