This is where inflation really makes itself felt

Daily life is becoming a lot more expensive as a result of rising raw material prices and higher transport costs. In Great Britain, this effect is even greater due to a shortage of truck drivers and seasonal workers. What does that mean for the pound? 

The record price of gasoline attracted attention in June, but many more raw material prices have skyrocketed besides oil. Consultancy firm Mintec calculates that an everyday product such as a can of tomato puree can rise in price by a quarter. This is mainly due to the tomatoes, which are 30% more expensive. But the metal of the can is also considerably more expensive. Even the paper for the label has to be paid more.

For some items imported from afar, the price increase may be much greater. The cost of shipping a container from Asia to Europe has more than tripled in just over a year. Nowhere in Europe are those price increases felt as sharply as in Great Britain.

Drivers wanted
Due to post-Brexit border controls, it is more time consuming and expensive to import goods from Europe. In addition, it is also a lot more difficult to get them from the port or airport to their destination. The country is faced with a huge shortage of truck drivers.

According to the British newspaper The Guardian, there are about 100.000 fewer drivers than before the pandemic. Some have switched to another profession. In addition, many Eastern European drivers have returned to the mainland due to Brexit measures and tax measures. And that makes itself felt. Tesco recently announced that 48 tons of fresh produce is lost every week due to the driver shortage.

New hamster rage?
Other supermarket chains have even warned about empty shelves. In the worst case scenario, the country could even experience a similar hamster rage as during the first weeks of the virus outbreak. Incidentally, a staff shortage threatens to throw a spanner in the works in other sectors as well. The local fruit and vegetable growers notice that far fewer seasonal workers travel to Great Britain than in previous years.

This could potentially increase food prices even further. At the British central bank, they are now also receiving more and more attention for these developments. During the meeting in May, the message was that inflation could possibly rise to 2,5% by the end of this year. Last week, the Bank of England (BOE) revised its inflation forecast to over 3%.

Pound is having a hard time
For now, the bank is discounting that inflation boost as a temporary effect and is still buying £3,4 billion worth of government bonds every week to support the economy. Chief economist Andy Haldane warned that inflation will be difficult to control once it rises too quickly.

But that was also the last thing he did in that role, as his term expired yesterday. This has reduced the chance that the BOE will step on the brakes in time. As long as there is little incentive to raise British interest rates, it will be quite difficult for the pound to continue the gain from the first half of the year

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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