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ALEX BRUMMER: Fateful signals from America as US inflation soars

ALEX BRUMMER: Fateful signals from America as US inflation soars and Federal Reserve turns off the taps

The US central bank view that the surge in the cost of living is transitory is looking ragged. 

The 6.2 per cent jump in US consumer prices in October is a shocker and carries inflation to its highest in three decades. 

Federal Reserve chairman Jay Powell has begun a reverse-ferret by rolling back $120billion a month of quantitative easing.

Shutting shop: Federal Reserve chairman Jay Powell (pictured) has begun rolling back $150bn (£89bn) a month of quantitative easing

When Bank of England Governor Andrew Bailey casts his eye across the Atlantic he will be thinking: ‘There but for the grace of God…’.

There is a core difference between what has been going on across the Atlantic and here. The US creation of broad money over the past couple of years has been far faster than in Britain., and would have the high priest of monetarism, Milton Friedman, spinning in his grave.

The spectre of inflation running out of control places Joe Biden in difficulty. He must decide soon whether to reappoint Powell, a Republican former investment banker chosen by Donald Trump, or put his own stamp on the Fed.

Senate approval is required and with Powell’s term ending in February an urgent decision looms. Powell couldn’t have done more to keep the US economy from sinking in the pandemic so there are no doctrinal reasons for not giving him a second term.

What is more disturbing is the breakdown of ethical behaviour at the Fed with two regional chairmen and a key official having been outed for trading government bonds. That is not a good look.

History tells us that a Fed boss who loses control of inflation pays with their job.

Moreover, the President is a traditional Democrat and places tribal politics (witness Northern Ireland) above everything.

That’s why Powell’s replacement by Lael Brainard, a professor and Democrat who is currently a Fed decision maker, might be alluring. 

What will worry inflation-watchers in the US and Britain is that even after volatile energy and food prices are stripped out, US core inflation jumped by 0.6 per cent in October. Higher prices are working their way into the sinews of the economy.

Bailey and the Bank of England marched the money markets to the top of the hill by dangling a rate rise and then left them stranded last week. The Governor will want to be more decisive next time.

The US has sent out a warning and the Bank should soon have clearer evidence on the impact of the end of furlough.

At 0.1 per cent, the UK bank rate is negligible and even a rise to 0.25 per cent is not going to scare the horses. Home buyers have been enjoying a mortgage honeymoon but all good things come to an end.

What is important is sending out a signal that there will be no return to the bad old days of high single-digit inflation or worse.

Glorious food

After a decade of turmoil on the UK’s high streets, which saw BHS, Debenhams and Arcadia vanquished and House of Fraser reduced to a shadow of its previous grandeur, Marks and Spencer is among the last of the great surviving names.

Strategic decisions taken by chairman Archie Norman and chief executive Steve Rowe in the pandemic are paying off. 

Investing in food through the Ocado joint venture and by opening up more space in stores is producing handsome returns.

City centre trading may be a disaster but shopping centres and retail parks are doing better and the retailer has snapped up some of the better Debenhams premises.

The result is a profits upgrade, an impressive jump in cash flow to £287.6million from a negative two years ago, and the promise of more than £500million of profits by year-end.

The jury is still out on fashion and homeware but there are bright spots in kids clothing, denim and more relaxed, sports-style adult outfits.

Marks and Spencer has a long way to travel from the days when its arm of small investors could look forward to scrip issues of shares and a dividend.

But hope springs eternal.

Courting Google

The UK Supreme Court has ruled out compensation for victims of data misuse by Google – dealing such class action suits a deadly blow.

In contrast, the General Court in Luxembourg has just upheld a £2billion fine against the internet behemoth for its competition breaches.

Maybe European justice isn’t so bad after all.