over 2 years ago • 3 mins
A major economic organization said on Tuesday that inflation is here to stay for the next two years, but it’s actually remarkably relaxed about the whole affair.
What does this mean?
Let us count the ways prices are being pushed higher and higher these days: massive pent-up demand, ongoing supply chain bottlenecks, sweeping government economic support, surging energy costs for manufacturers and homeowners alike – the list goes on. The US and the UK have already read the writing on the wall and bumped up their inflation forecasts, but now it’s the OECD’s turn: the organization is predicting that the inflation rate across 20 of the biggest economies will hit 3.7% in 2021 and 3.9% in 2022 – up from its earlier forecasts of 3.5% and 3.4% respectively.
Why should I care?
The bigger picture: There’s hope yet.
The OECD isn’t particularly het up about the situation, saying there probably won’t be much long-term damage to these countries’ economies if they can successfully navigate the inflation challenges. It wasn’t quite so confident about emerging economies’ chances, mind you: their high debt, high rates of infection, and low rates of vaccination mean they’re likely to have much weaker recoveries ahead of them.
Zooming out: China’s no biggy either.
China’s latest crackdown has plenty of investors on edge: the country’s been coming down hard on the property sector, which represents an estimated 29% of the country’s economy. So it follows that investors aren’t just worried about what effect the collapse of giants like Evergrande might have on the country’s economy, but on the world at large. But even that doesn’t seem to worry the OECD too much: it reckons that China’s financial system isn’t interconnected enough with the rest of the world’s to cause wholesale problems.
Airline stocks jumped on Monday after the US announced it’d be letting vaccinated travelers back into the country from November.
What does this mean?
The US government first brought in strict travel restrictions to limit the spread of you-know-what in March last year, but it’s finally ready to open up again now vaccine programs have rolled out across the world. And long-grounded vacationers aren’t the only ones counting down to the rule change: airlines used to sell more first-class and business class seats on flights between the US and Europe than they did elsewhere, making these some of the most profitable trips they offer.
Why should I care?
For markets: European carriers are the real winners.
American airlines might be looking forward to getting back to long-haul flights, but at least they’ve had domestic business to fall back on this past year. European carriers, on the other hand, have had to navigate all sorts of tricky restrictions, so the return of routes into the US is big news for them. That might be why British Airways parent IAG’s shares surged more than 11% after Monday’s announcement, while American Airlines’ stock only climbed by 3%.
The bigger picture: Lufthansa needs cash fast.
This is a weight off for airlines, sure, but they still have a lot of baggage to deal with from last year. Just look at Lufthansa, which only managed to survive the pandemic thanks to a bailout from the German government. The German carrier wants to pay the money back by the end of the year, but since in-flight peanuts aren’t quite footing the bill, it announced over the weekend that it’d try selling $2.5 billion worth of shares instead.
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