The Times They Are A-Changin’: Life Just Gets More Expensive

 

 

“Yesterday’s faded Nothing can change it Life’s what you make it”

 

 

As the Iran war continues to send shock waves through global energy markets, last month’s increases to UK gas and electricity bills saw inflation rise to 2.9% from 2.6% in June.

 

There was some good news for hard pressed families as food and non-alcoholic drink inflation slowed to an annual rate of 1.3%, down from 1.7% in June – the lowest rate since September 2021.

In response, it is expected that the BoE will fire blanks at inflation and begin increasing interest rates.

Quite how they think this will help mystifies me. There is no excess demand, people can barely afford the essentials. All this will achieve is greater inequality and more families sinking into poverty.

I can only assume they feel the need to be seen to do something.

 

‘There is no excess demand, people can barely afford the essentials’

 

Elsewhere, water providers continue to look for ways to further penalise customers for their own shortcomings, with plans to impose “surge pricing” on water usage during droughts. Their theory is to charge more during summer and less in winter, or to charge higher prices when consumers pass a threshold of water use.

Got to keep those dividends up!

The biggest culprit is still Trump’s foolish war, with economists warning of further inflation increases after Ofgem, the energy regulator, lifted its cap on household gas and electricity bills by 13% in July.

Thomas Pugh, the chief economist at the accountancy firm RSM UK, estimates this increasing inflation by C.0.44%.

At this point, I will borrow from Paul Krugman, the eminent US economists, who asked the question, why aren’t oil prices even higher?

Currently, the price of Brent Crude is C. $88 a barrel, whereas $100+ had become the wartime norm.

 

‘water providers continue to look for ways to further penalise customers for their own shortcomings’

 

Mr Krugman points out that we don’t directly use crude oil, we use products refined from it, E.G., petrol .

Prices for the refined product are rising to wartime levels.

The difference between the price of a barrel of crude and the price of the refined product is referred to as the “crack spread”: this has increased C.$35/barrel since the eve of the war.

Overall, this equates to an increase of $60: $25 extra on a barrel, and $35 for the refined product.

Mr Krugman’s explanation for this shows the impact of global the supply-chains’.

The majority of the world’s refining capacity is either trapped inside the Strait or offline due to Ukraine’s drone campaign against Russia. The latter is seen as being increasingly important, and it is reported that VP Vance asked Zelenskyy to halt attacks on oil tankers using the Russian port of Novorossiysk.
 

‘why aren’t oil prices even higher?’

 

Somewhat counterintuitively, the shortage of refining capacity has, held crude prices down, as buyers didn’t want to pay inflated prices for crude they can’t refine. However, that is now changing and limited refining capability is leading to an overall increase in the process of the refined product.

One way of offsetting the cost-of-living is for people to have “better” jobs, something I addressed in “Levelling-Up and Net Zero.”

Within this, I highlighted the 4m working in the gig economy.

In a recent report by the Fabian Society and the Joseph Rowntree Foundation, they urged the PM to protect these workers by prosecuting companies that use widespread “bogus” self-employment practices to deny people their key statutory rights including parental leave, redundancy pay and protection against unfair dismissal.

The report calls on the government’s Fair Work Agency, the watchdog for workers’ rights, to use its civil proceedings powers to prosecute companies suspected of engaging in “widespread bogus self-employment.”

 

‘“bogus” self-employment practices to deny people their key statutory rights’

 

Our employment laws are unusual among leading economies for including three classifications of employment status: employee’s have the most rights and responsibilities, the self-employed person have limited protections but fewer obligations, whilst intermediate “workers”, or “limb ^(b)” status, with fewer rights and obligations than a full employee.

Experts say many have been hired by gig economy companies on this basis to avoid granting them employment rights.

Labour had promised to create a single “worker” status for all but the genuinely self-employed, before backtracking to fend off Conservative attacks on its approach to business before the 2024 general election.

Needless to say this haven’t reappeared.

There has clearly been intensive lobbying from business over the government’s Employment Rights Act, which includes a ban on exploitative zero-hours contracts and day-one rights to statutory sick pay.

There is clearly a trade-off here between workers and capital; government analysis shows the planned changes would help to support economic growth and offer workers more protections, but they would cost businesses an estimated £350m to £2.9bn.

I would imagine that if this legislation was passed there would be a general corporate sulk followed by workers being laid-off and businesses reining back investment.

 

‘if this legislation was passed there would be a general corporate sulk followed by workers being laid-off and businesses reining back investment’

 

And, for those laid-off, enter Robert Jenrick, Reform’s Treasury spokesperson, plans to have them cleaning up high streets and doing charity work if they want to keep their benefits.

This forms part of Reform’s “welfare to work” policy; long-term claimants who are fit to work will be forced to do 20-hours of work a week in the community.

Jenrick said “If claimants refuse to participate or fail to show up, they’ll face penalties”.

Disability and sickness payments will be withdrawn or changed, and foreign nationals, including EU nationals, will be banned from claiming almost all types of benefits.

They claim their proposals could reduce spending by £50bn.
 

The biggest electoral bribe in history?

 

As with anything Reform proposes there are consequences and victims, Cuts to disability benefits could leave some low-income households facing reduces incomes of up to £10,000 a year, with poverty rates projected to increase by C.250,000.

Included in the victims will be their own voters; House of Commons figures show one in six working age adults in Reform leader Nigel Farage’s Clacton constituency claim personal independence payment (Pip), almost twice the England and Wales average.

State pensions, which this year are expected to cost £180bn, would be exempt, with similar protections for they called the “severely disabled”, although this wasn’t defined.

Within pensions is the often overlooked triple-lock, which is estimated to add £12 billion to £15.5 billion extra per year compared to standard wage indexation.

The biggest electoral bribe in history?

 

 

“My life got no better, same damn ‘Lo sweater Times is ruff and tuff like leather”

 

 

It’s cost-of-living week, and it just gets worse.

The very real issue is that this is imported supply-side inflation caused by Trump’s Iran war.

As we saw in 2023, inflation of this nature—like in the 1970s—is very difficult to overcome.

In 1979, Federal Reserve Chair Paul Volcker raised U.S. interest rates to nearly 20% to crush runaway inflation. Known as the “Volcker shock,” this aggressive tightening broke the cycle of stagflation, but it also triggered two severe recessions and pushed unemployment above 10%.

As they say, everything comes at a cost. But, it’s a  cost the UK couldn’t sustain.

Trump has paused attacks on Iran after a fortnight of strikes failed to bring Iranian officials back to the negotiating table. This pause is likely because the US is exhausting stockpiles of key munitions and has nearly exhausted its list of targets in Iran, meaning the military campaign has reached its limits of effectiveness.

Instead, Trump is considering increasing the US Treasury’s “Operation Economic Fury,” which aims to cut off Iran’s funding with targeted sanctions. Meanwhile, a naval blockade in the Strait of Hormuz seeks to block Iranian ports from exporting oil vital to keeping the country’s economy afloat.

Previously Iran overcame economic sanctions by exporting oil through a sophisticated network of shadow tankers.

Now, Trump proposes to prevent “oil smuggling, swap lines, cash transfers, exchange houses, ship registries, [and] front companies.”

This suggests secondary sanctions on countries that buy Iranian oil, which experts warn could lead to direct confrontation with China – Iran’s biggest trading partner – at a time when the US is trying to establish a new trading relationship with Beijing.

It’s going to be a long winter!

Lyrically, we start with “Life’s What You Make It” by Talk, Talk, and play-out with “C.r.e.a.m.” by Wu-Tang Clan.

Enjoyment was always overrated

Philip

 

@coldwarsteve

 

 

 

Philip Gilbert is a city-based corporate financier, and former investment banker.

Philip is a great believer in meritocracy, and in the belief that if you want something enough you can make it happen. These beliefs were formed in his formative years, of the late 1970s and 80s

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