Markets are pricing in a rather nasty shock for the British shopper. The much-heralded US-Iran deal, while a geopolitical triumph, is proving to be a supply chain headache for the humble supermarket aisle. The logic is as simple as it is painful: loosening sanctions on Tehran has unlocked Iranian oil, driving down global crude prices.
This sounds like a boon for fuel bills. But look closer. The same deal has sent a jolt through the fertiliser and grain markets.
Iran is a significant player in both. As trade routes reopen and agricultural subsidies are renegotiated, the cost of bread and meat is creeping up. Tesco and Sainsbury’s are already signalling price increases.
The bottom line is that a cheaper barrel of oil does not mean a cheaper loaf of bread. In fact, the sticky inflation of food staples is an ugly side effect of a diplomatic victory. Investors are dumping food commodity futures.
The Bank of England should be watching this one carefully. Fiscal discipline is all well and good, but when your weekly shop costs an extra tenner, the man on the street feels the squeeze. Market efficiency?
Hardly. It is a classic case of unintended consequences. The Government’s sanguine view on inflation just got a little more complicated.
