News, Views & Truths (19/07/21)

Published on: July 19, 2021

Once again, the news has been dominated by inflation – both here at home and across the pond in the US. But in a period of unforeseen events, you may be surprised to learn what could be your quickest appreciating asset, learn more in the latest News, Views and Truths.

Hello, everyone; I hope that you have all enjoyed a wonderfully sunny weekend, in the UK at least.  I’ve no doubt there will be some of you reading this who have over indulged, who are perhaps also a tad red at the edges?  Fear not; let this week’s News, Views and Truths give you some respite and guide you into the new working week.

Once again, the news has been dominated by inflation.  With our own earliest prediction of rising inflation numbers made last April, some 15 months ago, and naturally positioning our investment portfolios with this in mind, last week’s inflation reads, across both the UK and the US, surprised many.

UK Consumer Price Index (CPI) rose to 2.5%, the highest for nearly three years and above the Bank of England’s (BoE) annual inflation target of 2%.  Some of this increase was due to rising fuel costs as oil continued to appreciate in value, but much of this increase is simply down to the reopening of the economy, recovering from the lows 12 months ago.

Commentary from the BoE’s Monetary Policy Committee (MPC) indicates a view that the current surge in numbers is transitory, although this will likely peak at 3% in coming months before falling back below the Bank’s 2% target.  However, the BoE’s departing Chief Economist, Andy Haldane, took a more hawkish view that inflation was “rising fast” and could reach 4% this year.

Across the pond in the US, similar inflation numbers were printed, with US inflation in June rising to 5.4%, an increase of 0.9% over the previous month.  This number was the highest since 2008, when oil hit $150 a barrel.

Again, much discussion centres around the transitory nature of these price increases and, although consensus remains divided on this, there is no doubt as to what has been the greatest influence on the past month’s inflation increases, both in the UK and the US.

Used cars.

In this world of disposable everything, the cost of used cars has surged astronomically.  In the UK, second hand car prices increased by 5.6%, whereas in the US, this number was dwarfed with a 10.55% surge in June – the largest increase since the US government began tracking this data in the first year of Dwight Eisenhower’s presidency in 1953.

This is not a flash in the pan, however; in the first six months of 2021 alone, the cost of US used cars and trucks has risen by 32%.  So, what is driving this?

Supply and demand.  Due to the pandemic lockdown, rental car companies slashed new car purchases as their rentals fell off a cliff and, as a result, car makers cut production accordingly.  However, as we have begun to see a reopening of the global economy and a pickup in new demand, this has coincided with a global shortage of semiconductor computer chips that are essential in the production of new vehicles.

As a result, the supply of new cars has contracted greatly and the demand has increased equally as rapidly, resulting in a dramatic increase in used car prices.  However, this is likely to be temporary once the global chip shortage resolves itself and the mismatch between buyers and sellers disappears.

But in a period of unforeseen events, I bet none of you guessed that the banger on your driveway would be your quickest appreciating asset?  I certainly did not!

Disclaimer: Past performance is no guide to future performance and you could get back less than you invested. This is for information purposes only and does not constitute advice. If you do not understand any of the content, we would recommend you seek financial advice.

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