Life is getting a little busier as we approach summer proper. In particular, debt has returned into the financial headlines. In America, the Republicans and Democrats have now reached a deal to suspend the debt ceiling until January 2025, to avoid the potential default that would have left the US government unable to pay its bills.
Back home we learn that government debt has been rising faster than expected, with inflation pushing up the interest payments partly to blame. As it happens, inflation figures for April have been published and were a little disappointing. While the increase in the cost of living has dropped below 10% for the first time since August last year, at 8.7% the rate was higher than many expected. In particular, the rise in the cost of our weekly shopping basket continues to look alarming. While food inflation dropped last month for the second month in a row, our grocery bills continue to rise at a rate approaching 20% a year.
In the final analysis, the fall in oil and gas prices has made the biggest contribution to the drop in inflation. But perhaps the standout point in these figures was that core inflation (i.e., inflation excluding food, alcoholic drinks, energy and tobacco) actually rose. Behind this surprising statistic is the steady rise in wage settlements. This is just what the government does not want to see. Moreover, it will play into the hands of the hawks at the Bank of England, so further interest rate increases look inevitable. This was enough to send our stock market into reverse in trading immediately after these numbers were disclosed.
Until then, markets here had been relatively quiet. While there is little emerging in the way of company news, much in the macro space should be commanding the attention of investors. Inflation, sadly, will be a topic for some time as it will clearly remain higher here for longer than hoped. Let’s hope for some better news on the cost of living front.