In a display of economic revisionism that would make even the most ardent monetarist blanch, Donald Trump has declared that rising inflation in the United States is something to ‘love’. Speaking to reporters, the former president claimed that higher prices are a sign of economic strength, a position that stands in stark contrast to the grim reality facing British households. Across the Atlantic, UK consumers are bracing for a fresh wave of price increases, as stubbornly high inflation continues to erode real incomes and squeeze living standards.
Let us be clear: inflation is not a policy goal; it is a tax on savings. For those on fixed incomes or with cash under the mattress, rising prices are a stealthy redistribution of wealth from the prudent to the profligate. Trump’s cheerful endorsement of rising consumer prices is, therefore, either a profound misunderstanding of basic economics or a cynical attempt to distract from the Federal Reserve’s belated tightening cycle.
Meanwhile, in the UK, the situation is more acute. The Office for National Statistics reported that CPI inflation remains above the Bank of England’s 2% target, driven by services sector stickiness and stubborn wage growth. The Bank’s Monetary Policy Committee, having raised interest rates to 5.25%, now faces a painful trade-off: keep rates high to crush inflation, risking a recession, or cut early to stimulate growth, inviting a sterling crisis.
Gilt yields have been volatile, reflecting markets’ uncertainty about the pace of disinflation. The 10-year gilt yield, a barometer of borrowing costs, has hovered around 4.2%, a level that makes servicing the UK’s substantial national debt increasingly painful. Chancellor Jeremy Hunt, who has preached fiscal rectitude, will find his fiscal headroom evaporating if yields stay elevated.
The bond market, as always, is the ultimate disciplinarian. It does not care for political slogans or populist gestures. It only cares about the data. And the data suggests that inflation in both the US and UK is proving more persistent than many had hoped. The so-called ‘last mile’ back to 2% is proving a long and winding road.
For British households, the pain is tangible. Food prices, while easing from their double-digit peaks, remain significantly higher than two years ago. Energy bills, though lower than last winter, are still above pre-Ukraine invasion levels. Mortgage holders are refinancing at rates that would have seemed unthinkable in the era of ultra-low interest rates.
What is Trump’s alternative? A cocktail of tariffs, tax cuts and currency manipulation that would likely reignite inflationary pressures and destabilise global trade. The former president’s ‘love’ of inflation is a dangerous flirtation with economic populism, a reminder that his first term’s tax cuts were a fiscal stimulus that overheated an already growing economy.
In the City, we know that the market is always right in the long run. It punished the UK’s Truss-Kwarteng mini-budget with a gilt market meltdown. It will punish any policymaker who thinks inflation is a toy to be played with for political gain.
The bottom line: Inflation is not something to love. It is a symptom of imbalances, a malady that erodes value and undermines confidence. For investors, the key is to watch real yields and central bank credibility. For households, the key is to buckle up. The rate cycle has turned, but the adjustment is far from over.
As the Bank of England and the Federal Reserve navigate this precarious path, one thing is certain: the era of easy money is behind us. The question is whether policymakers have the stomach to finish the job without breaking the economy.
