What caught my eye this week.

The markets are throwing in the towel on the notion of ‘transitory’ inflation, or at least transitory US inflation. The US consumer price index just jumped 6.2% – the most since 1990 – and alternative measures that strip out everything that Americans actually want to buy show rising prices, too.

Some holdouts believe this is an American issue. They finger more generous fiscal stimulus in the US. Europe and Asia might yet avoid surging prices, they suggest. But that doesn’t seem likely to me.

Prices are already up in the UK and inflationary Brexit impacts – border friction and staffing shortages – are piling on top of the global trend.

More generally, Covid and waves of economic shutdowns happened globally. Those disruptions are what’s causing rising prices.

The best case – which I still haven’t totally given up on – is that inflation should ease as we get past the worst of Covid. Some price rises may even reverse as deflationary forces prevail again.

However I’m coming around to the view that higher prices may persist.

And that’s mainly because they are already persisting!

The more we see rising prices, the more companies and consumers expect more of the same. Companies will increase prices where they can. We’ll try to get pay rises to keep up.

That in a nutshell, is what they call spiraling inflation.

We best hope it doesn’t get out of hand.

Keep on keeping on

Should Central Banks be quicker to raise rates in response to rising prices? The US bond market has been mildly roiled recently by fast-shifting calculations concerning exactly that.

I’m not convinced the boss bankers should hurry, however.

Let’s think about why we have these rising prices today.

Back at the beginning of Covid consciousness – late February to March 2020 – there was no consensus as to how nations should or would tackle the threat.

As long-time readers may remember, I was wary of mandating blanket economic shutdowns. True, that had seemingly done the trick in China. But China had only needed to totally switch off one province, and I feared the consequences of shuttering countries. I wondered if Westerners would even submit to such mandates. And if they did, there would be a big sudden hit to GDP – as well as some lasting economic damage (or ‘scarring’).

As it became clear a second wave of Covid was coming in the UK by late summer 2020, I gave up my side hustle as a freelance epidemiologist. It was clear I’d misread some of the early data. Moreover the experts were right – Covid would be with us for a time. No use in wishful thinking.

Nevertheless, that time looked truncated when the vaccines arrived in Autumn 2020. Especially when their efficacy data was better than anyone expected.

Since then though the vaccine picture has got murkier. Vaccines have done a great job preventing death and reducing hospitalization. But – perhaps because of the emergence of the delta variant – they have done less well curbing transmission. Worse, more than 100 people are still dying of coronavirus every day in the UK. That includes plenty of unvaccinated. The picture is similar the world over. This all has consequences for our economies, and hence inflation.

Persistent Covid has led to a pattern in most countries of waves of infection, some measure of lockdown and restriction, and then periods of rebounding economic activity. Set against that is a rising count of vaccinations (that has rightly made people feel safer) and natural infection (that probably hasn’t, but has ultimately conferred the same antibodies so should).

It’s looking likely the pandemic endgame is that most people in most countries get vaccinated, but the virus never vanishes. Many of us will encounter Covid again in the wild during an Nth wave, but we may not be much affected after repeated vaccinations and low-level infection. There are good new drugs to treat infections coming on-stream, too. Eventually, Covid fades into the background as enough people have been exposed, perhaps multiple times. With luck it doesn’t flare up as something deadlier or even more infectious.

One reason for this fatalistic attitude is what’s going on in Europe right now.

For the past few months people have asked why the UK can’t be more like the Germans, say, who had seemed to have avoided a delta wave.

In recent days though a new wave has taken off in Europe:

True, the vaccination rate isn’t especially high in Germany and Austria. There may be other local factors, too.

But there really doesn’t seem much room between the most extreme measures – China’s zero-tolerance say – versus trying to vaccinate as many as you can and then opening up and running hot, as we’ve done.

Anything less than fortress isolation and it seems that (delta) Covid will find you out, sooner or later. After that it’s about managing peak numbers to prevent pressure in hospitals.

The Netherlands is even going back into a partial lockdown.

Keep on pushing

Back to inflation, and Covid’s impact on the economy. What we’ve seen over the past 22 months as the pandemic outlined above has played out is:

• Consumers save a lot when in lockdown
• Most are happy to spend when restrictions ease
• This has led to wild fluctuations in the savings rate
• It’s also left companies by turns over and under-estimating demand

There has been huge disruption to supply chains and working practices caused by both Covid and by the measures that restrict its spread.

Some people believed we could switch off the economy and then on again with almost no impact. Almost like moving one cell in a spreadsheet from column A to column B.

And indeed, this has sort of happened at the aggregate level – albeit at the cost of a piling up a lot of national debt to make this ‘suspended animation’ possible (via furlough payments and the like).

GDP recovers sharply from lockdowns in most countries. Even where a lot of jobs were lost, such as in the US, the vast majority of those who want work have now found it again.

However it has not been exactly like that cell copy-and-paste process when you look into the weeds.

Maybe I’ve spent 20 years too long reading company reports, but I was adamant that turning off the economy would snarl up the global economy to some degree. Today’s companies are run so efficiently they get disrupted by almost anything, and they happily make this plain to shareholders. So it was clear that suppliers and customers unpredictably blinking on and off like a globalized game of Whack-a-mole would cause trouble.

In this stop-go economy, if you need this or that commodity or component to finish your product and meet recovering consumer demand, you will pay more for it. Perhaps a lot. Since you can pass at least some of the higher cost to newly-ravenous consumers, you do. Hence rising prices.

Still, I believed this would be a one-off shock that would get sorted in a few months. But I was wrong about that. The rolling waves of Covid and those on/off restrictions mean different bits of the economic tapestry continue to go offline at different times. So the disruption continues, perhaps hidden by what’s captured in noisy overall GDP figures.

There are other factors, too. I’ll leave you to Google if you’re curious, but the biggie is obviously a labour shortage in many Western markets.

Some people left the workforce early – aka the Great Resignation. Others don’t want to do what they did before, having reassessed their lives from their comfy couch for a year. (Put service staff into this group). Some people are still scared of getting sick. A lucky few have maybe made so much from rising asset prices of all descriptions that they don’t need to work any more.

Near-zero interest rates are a factor at the margin, too. To lots of everyday people, saving seems a waste of time. True, rates have been low for a very long time, but many people didn’t have any savings for much of the past decade anyway, so they were none the wiser.

Now they do have cash – from government support and enforced confinement – they see little incentive to save it.

The wealthy already save too much (arguably), but I notice many are now happier to flash extra cash at the margin, post-Covid. Certainly my richer friends have paid almost any price to travel this summer. Even I overpaid for my recent jaunt to Cornwall.

It all adds up.

People get ready

So basically we have more people with more money to spend chasing goods and services that cost more to make because someone somewhere in the world couldn’t or wouldn’t make or do something else, or didn’t want to buy what someone else made.

Simple, eh?

The trouble is it’s hard to see this situation changing anytime soon. That’s because Covid continues to be felt across the globe.

Companies will get better at flexing their supply chains – they already are – but there’s a limit. Anyway, it costs money. That is itself a recipe for higher prices a few months from now.

Then you have recovering rents (for landlords of all sorts) and other postponed inflationary hikes as we return to normal. (Some of this should be eased from a CPI perspective by the 2020 recession lows falling out of the statistics.)

I suspect all this is why the Bank of England and the US Federal Reserve aren’t yet raising interest rates. Making money more expensive on top of everything else won’t do anything to solve short-term disruption problems. Much higher rates could make it much worse.

That said, Central Banks know they can’t let this get out of control. Raising rates will curb demand, even if it doesn’t help the supply situation. So we can be pretty sure they will act eventually – probably once they believe the economy is sufficiently settled to take the shock.

Maybe we can all agree not to ask for a pay rise? That’s our best bet for dodging embedded long-term higher inflation – and consequently much higher interest rates, which would do wonders for our cash deposits but smash bonds, and likely also hit richly-valued shares.

How about it? A collective sacrifice for the good of a long-forgotten statistic like CPI?

Yeah, me neither. Best buckle up for a bumpy ride…

…or else hope that all this inflation fear becoming the consensus means we’re actually at the peak of inflation concerns? Maybe when the Fed blinks – and everyone is all-in on inflation – it’ll be time to contrarily buy 10-year Treasuries?

Funny things, markets.

Have a great weekend everyone!

[continue reading…]

I have just reread my three-month ‘How’s FIRE1 going, then?’ update.

I seemed happy when I wrote it. I’m happy now! So far this thing has not grown old.

I was outed recently at a friend’s birthday. I was among peers I hadn’t seen for ages, but have known for years.

Word had gone round: TA is ‘retired’.

The responses?

• “WTF?”
• “How does that work?”
• “Are you really retired?”
• “What do you do all day?”

Under this intense interrogation, I finally found a way of explaining FIRE that seemed more relatable:

You know when you’re on holiday at home? You don’t go anywhere fancy but spend more time with family and friends, doing the things you want to do.

The pace of life slows down, you relax, and even chores don’t seem so bad.

It’s like that. All the time.

Ding! That made sense to people. Now they could imagine it. Most of them had lived that for a few days over the summer and they wanted more.

Instead of puzzlement, I now got smiles. And stories about hiking trips to the Lakes, lunch dates with friends, and time to be yourself.

That last point struck home for me. I had a work persona that I donned like a suit of armour. The slings and arrows of the office mostly bounced off, but the odd potshot got through. Each hit taking another nick out of the me inside.

Wearing that persona made me feel hollow, like The Tin Man.

After a week off, I’d feel like I was just about emerging from the shell. Then I had to strap it back on and rejoin the fray.

Floating in space

I feel so much lighter now. I haven’t felt this free – or as excited about what’s around the corner – since I was a 21-year-old entering the workforce.

It’s amazing to have that feeling back. Tempered by grizzly/grisly experience, of course!

Mrs Accumulator and I met at uni. We’ve spent more time together this summer than at any point since those student days. That’s been wonderful.

Something that’s very little talked about is the emotional wrench of leaving your loved ones for 10 to 14 hours every day of the working week.

We don’t talk about it because we all do it. It’s normal. But it wasn’t so before the industrial age. I don’t think many people are really built for it, and that’s partly why Monday mornings feel soul-destroying.

We’re in Monday mourning for family bonds that cannot be replaced by office perks like a coffee bar or table football (because this workplace is sooo much fun!)

Now that’s in my past, I’m scaling the far side of the happiness U bend.

Rediscovering the lightness and sense of possibility from my youth is an unexpected gift.

Maybe now I can have another tilt at being an astronaut?

Okay, maybe not. But I can have breakfast in the garden just because it’s sunny.

Or enjoy a conversation with a neighbour because I don’t have to hurry.

And I’m not on the verge of a minor meltdown just because a bin bag burst, I’m knackered, and I can’t take it anymore.

Positivity overload

Too much? Don’t I have anything negative to report?

Or is FIRE like living in a Hovis advert, 24/7?

I’ve come to realise that I still need to protect my time a bit. Before financial independence I dreamed of endless days when I could do everything I wanted and still have time for tea.

Clearly though, that was the babbling delusion of a fantasist.

I can’t squeeze it all in and some of the wrong things have been squeezed out. My physical fitness has dropped off a cliff.

There was always a place for it in my work-life routine. Now that’s fallen apart I haven’t found a new slot for exercise.

So I need to sort that out.

Otherwise all that sustainable withdrawal rate (SWR) planning for a long and happy life will be for nowt. Tut-tut!

Take it steady,

The Accumulator

1. Financial Independence Retire Early. [↩]

This article on the Financial Ombudsman is by The Treasurer from Team Monevator.

I was a big fan of the BBC’s Rogue Traders. The host Matt Allwright would confront dodgy businessmen in action. He’d chase them down a street if they did a runner from the cameras. It made for a great show, though it’s since been relegated to become a part of Watchdog.

Anyone who regularly watched Allwright’s antics would be forgiven for thinking the UK is a Wild West when it comes to consumer protection.

However, despite it looking easy on the TV, being a rogue firm in Britain is actually hard work.

That’s partly because of two very valuable pieces of consumer weaponry.

I’ve previously highlighted the benefits of Section 75 of the Consumer Credit Act. I explained how this nifty bit of legislation gives you huge protection on credit card purchases.

This time I want to touch on one other big piece of consumer protection – known as the Financial Ombudsman Service.

Enter the Ombudsman

While the Financial Ombudsman Service isn’t exactly a form of legislation, it was set up by the Government back in 2000 to settle complaints between consumers and businesses that provide financial services.

The term ‘financial services’ is rather vague, but the remit of the Ombudsman safely covers banks, building societies, insurance firms, investment services, and even breakdown cover.

The Ombudsman is completely free to use, and settles disputes by what is deemed ‘fair and reasonable.’

As a result, you don’t have to be a legal eagle to be successful with a Financial Services Ombudsman claim.

If you think a financial company has treated you unfairly, then chances are, you’ve a pretty decent case.

How does the Financial Ombudsman Service work?

First things first, if you’re at odds with a financial company, you can’t just take your complaint straight to the Ombudsman.

That’s because you must first make a complaint to the financial company, outlining your grievance.

If you are dissatisfied with its response, you may wish to crank up your complaint in a follow-up.

Make it clear you aren’t prepared to back down. When you do this, explain that you are prepared to take your case to the Ombudsman.

If this does the trick, then great!

If not, then any further correspondence from the company should state that it is their final response. This is often referred to as a ‘deadlock letter.’

Once you receive this, you’ll have every right to escalate your case to the Ombudsman.

The same also applies if you don’t hear back within eight weeks.

How to start a claim with the Financial Services Ombudsman

To start a claim, you must use the official website, or call 0800 0234 567.

At this point, it’s recommended that you forward any relevant correspondence, and/or evidence supporting your claim.

If the Ombudsman needs any further information, it will reach out to you.

Claims typically take between three to nine months to resolve, though it can take longer during busy periods.

Once the Ombudsman makes its legally-binding decision, the financial company will have to put right any wrongdoing.

If the case doesn’t go your way, you do have the option of asking for the decision to be reviewed by an actual Ombudsman, rather than a caseworker.

Financial Ombudsman Service: What else is there to know?

Aside from the practical steps, here are four things that are worth knowing about the Ombudsman.

1.You can go back up to six years to make a claim

That’s right. You can submit a case to the ombudsman up to SIX YEARS after an event took place.

For example, if you were treated badly by your insurance provider a few summers ago, there may still be time to put things right.

2. You don’t have to use the Ombudsman

If you’ve suffered wrongdoing by a company, then the option to take your case to the traditional county court still exists.

However, while the Ombudsman will make a judgement on the nebulous definition of what is ‘fair and reasonable’, the court will base its decision on the letter of the law.

3. It normally applies to UK-based companies (but check)

While it may seem obvious, you typically can’t use the Ombudsman service if the company you have a grievance with isn’t based in the UK.

However some non-UK based companies such as PayPal have voluntarily agreed to join the service. So if you do have a dispute with an overseas financial company, it’s still worth checking with the Ombudsman to see if it has the authority to take on your case.

4. The service is free (but only for consumers)

While a lot is made of the fact that the Ombudsman is free for consumers, the same isn’t true for financial companies.

While the Ombudsman offers businesses 25 ‘free’ cases a year, subsequent cases are billed at £750 a pop, regardless of the outcome.

In other words, even if a company wins at the Ombudsman, it will often have to pay a hefty charge for the privilege of using the service.

This, in my opinion, is what makes the Ombudsman such a powerful consumer weapon. The mere mention of going to the Ombudsman may encourage even the most tightfisted of companies to simply pay up.

Financial Ombudsman Service: my experiences

Despite having written this article, I’m almost ashamed to admit that I haven’t needed to use the Ombudsman directly.

That being said, I’m certain the existence of the service did persuade a former travel insurance provider to pay up for a legitimate claim.

It all took place a few years ago when my passport was damaged by rainwater during an overseas trip. As I hadn’t been drinking, nor had I acted unreasonably, I was certain my claim would be approved.

(I did go through the policy small print to make sure I hadn’t inadvertently done something I shouldn’t have!)

My initial claim was turned down,. The insurance company outrageously claimed my passport wasn’t properly in my possession during the time of the incident. I refuted this by adding a follow-up with further details about my claim.

Once again, I was given the cold shoulder.

My next response I upped the ante. I let my provider know that I’d have ‘no hesitation in taking my claim to the financial ombudsman service’ if I was not satisfied with their next reply.

They decided to pay up.

To my mind this was because they knew – as I did – that the Ombudsman fee would be greater than the cost of replacing my passport.

Sticking up for the little guys

When I tell others about my experience, it’s often suggested that I was partly to blame for going with the cheapest travel insurance I could find.

Yet in my view, the existence of the Ombudsman simply means that I don’t have to worry about overpaying for financial products in the future.

If anything goes wrong, the Ombudsman has my back!

Over the years I’ve shared my knowledge of this free service to friends and family. I’ve yet to hear of any negative experiences.

Have any of you used the Financial Ombudsman Service? If so, we’d love to hear your thoughts in the comments section below. You can also check out The Treasurer’s archive of previous articles.