Welcome to our #191 weekly newsletter.
“For women taking control of their financial future”
-Jana Hlistova
From The Purse
In this week’s newsletter, we highlight a short extract from The Purse Podcast interview with UK economist Vicky Pryce.
We talk about why UK inflation continues to be so high, the impact Brexit has had on UK inflation, the cost of living crisis, wealth inequality and what’s ahead for rest of 2023 and 2024.
Listen to the full podcast interview here.
And you can review the news in brief so you stay on top of global financial, economic and investing trends.
I hope you enjoy this week’s newsletter.
Until next week,
Jana
UK inflation: why is it so ‘sticky’?
We talk to UK economist, Vicky Pryce on The Purse Podcast about UK inflation and what’s ahead for the rest of 2023 and 2024.
Vicky Pryce has rejoined us on The Purse Podcast.
Vicky Pryce is Chief Economic Adviser and a board member at the Centre for Economics and Business Research (CEBR).
In this podcast interview we talk about why UK inflation is so ‘sticky’, the impact Brexit has had on UK inflation, the cost of living crisis, wealth inequality, and what’s ahead for the rest of 2023 and 2024.
Below is a short extract from the interview:
Jana: …The expectation was that we would come down to 2% (inflation), or thereabouts, by 2023. Why is inflation proving to be so difficult to get under control? Because I think people are quite worried now, aren't they?
Vicky’s response:
Indeed…it’s really interesting what's been going on. But of course, it varies so significantly from country to country.
The FT quote that you just read out suggests is that in nowhere are we likely to get back to the 2% target before 2025. But if you look at individual countries, that's not true.
We've already got some countries in Europe, such as Spain, for example, which is below the 2% target of the European central bank.
…So what we've seen in many countries, inflation has been reducing and reducing quite significantly. The question of whether we get back to where we used to be ie inflation staying around 2%, when that will happen and whether it's going to stay there for a long period of time, as before, is a good one.
We may have left the period of low inflation behind because we now know that with the war in Ukraine, anything would happen with energy prices, food prices could go up or down. And climate change is affecting things.
Maybe globalisation isn't happening at the rate that we had assumed. In fact, if anything, we're retreating from it.
All of that is making it harder to see prices staying low over a period of time. So inflation will still be there. High prices probably are here to stay (if you compare it to the 2% target).
In other words, even if inflation is tamed, we're still going to have prices at higher levels than before.
…But it's not as dire as it looks and as most economists have predicted once the energy problem disappears (or at least is abated for a while), then inflation would be coming down.
The real question is whether we've now generated a lot of ‘cost push’ through higher wages and where will that end? We all thought things would ease up quite dramatically after we saw the energy prices come down, which they have, but in the UK, we're still seeing really high inflation.
Jana: Brexit has a big part to play in the UK. I'm fascinated by the fact that in the US, their inflation has come down to approximately 3.4%. It was very high at 9% or so. And it's come down dramatically, but we're not seeing that in the UK. How much of the high UK inflation is as a result of Brexit?
Vicky’s response:
It's something which is quite hard to define.
But one of the ex-monetary policy committee members, Adam Posen, had worked out that something like 80% of the difference between the UK and Europe in terms of inflation is due to Brexit because, of course, we have barriers to trade.
It's not necessarily tariffs, but everything else that's going on. Getting things sent over from Europe has become considerably more expensive and it’s likely to continue on an upward trend when even more restrictions are imposed by the UK.
Hardly any (restrictions) have been imposed for the moment, but it's still quite hard to do business really with Europe in a number of areas…
Listen here to the full interview with Vicky Pryce.
News in Brief
Financial news
Mind the gap: while liquidity from the three leading central banks has recently fallen sharply, the Nasdaq 100 has nevertheless risen.
The value of global bonds drop another $754bn this week – the second weekly loss in a row – as the interest rate world is just repricing for more Fed hikes.
US 5 year real yields jumped +7.0bps, closing above 2% for the first time since 2008, highlighting that policy and yields are getting more restrictive.
Fed Terminal Rate unchanged at 5.4% after the release of FOMC minutes which are consistent with recent policy narrative. Fed bias remains hawkish as expected. Further rate hikes expected this year. The market is pricing in another ~33bp worth of increases.
US wage growth stronger than expected in June, but job creation slows. Wages rose by 0.4% last month, while total nonfarm payroll employment increased by 209,000, and the unemployment rate has dropped to 3.6%.
ECB Balance Sheet plunged by €491bn last week, biggest drop since Dec2022 as banks repaid €503bn of their TLTRO loans & due to quarter-end adjustments.
Five-year fixed mortgage rate hits 6%. UK borrowers continue to be hit by higher mortgage rates as the cost of living squeeze continues.
UK house prices fall at fastest annual rate since 2011, says Halifax. Average price of property drops by 2.6% year on year in June as mortgage rates climb.
Food inflation starting to fall, says Sainsbury’s as sales rise. Like-for-like sales up 9.8% in quarter and supermarket says it has put more than £60m into cutting prices of basics.
The world’s 500 richest people added $852bn to their fortunes in the first half of 2023. Each member of the Bloomberg Billionaires Index made an average of $14m per day in H1.
Crypto: bitcoin, ethereum, DeFi & NFTs
Bitcoin 'holds its ground' amid multiple signals that rate hikes could continue. Bitcoin is hovering just above $30,000 amid multiple signals that more rate hikes could be in store this year.
Bitcoin hit a one-year high after crossing the $31,000 threshold on Monday on news that the world’s largest asset manager, BlackRock, was refiling its application to the SEC for a Bitcoin spot ETF.
Solana thrived in spite of news that popular trading app Revolut is delisting it—along with Polygon (MATIC) and Cardano (ADA)—after they were named as securities by the SEC in its ongoing lawsuits against Binance and Coinbase.
BlackRock CEO Larry Fink sees bitcoin as 'digitising gold'. BlackRock CEO Larry Fink said Wednesday that he wanted to work with regulators and hear any concerns they may have about a recent filing from the asset manager for a spot bitcoin ETF.
Bitcoin miner fee revenue saw 300% jump in Q2, driven by activity around Ordinals.
Coinbase knew it violated securities law, SEC says. Lawyers for the U.S. Securities and Exchange Commission took an incredulous tone to Coinbase’s argument that it did not know it violated securities laws.
Grayscale makes Lido the second-heaviest component in its DeFi Fund. LDO’s weight in the fund sits at 19.04%, second only to Uniswap’s UNI at 45.46%.
Binance marketshare at lowest point since beginning of the year. Binance’s marketshare among exchanges with no USD support has shrunk from 72% at the start of the year to 58%.
The Purse Podcast
We cover the following in our conversation:
Inflation and getting back to the target 2%
UK inflation-energy prices and food prices
Brexit and the impact on inflation
Rising interest rates and mortgages
Cost of living crisis
Wealth inequality
What's ahead for 2023 and 2024
Please enjoy! Listen on Apple Podcasts and Spotify+
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We’d love to hear from you. Get in touch with Jana via the The Purse website or tweet @jointhepurse and janicka.
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The Purse provides content for informational purposes only, we do not provide investment advice. Please do your own research or speak to a financial adviser.
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