The run up to Christmas is miserable, as we all know. We don’t know how much the Omicron variant is going to hit us in the coming months.

For the holiday week I’ll be taking a short break. However, before we get into the column, let us pause to reflect on what we learned about global finance and economics over the last year and how it can help us in 2022.

It is important to note that 2021 was despite many failures, an year of moderate success.

Rising inflation: 'The lags between what the central banks do and what happens to price levels are uncertain but we know they can be very long,' says Hamish McRae

Rising inflation

Although we won’t be able to see the figures for several more months, it appears that the US economy will grow by 5.5%, which is well above its peak prior to the outbreak of the pandemic.

The UK might have experienced an increase of 6.5 percent, however, because last year was such a bad year, we are unlikely to be back at the same level as January 2020.

However, the global job market is strong. This is especially true in Britain where there are now more workers than ever before, and fewer job vacancies.

The financial markets reflect this image of a robust recovery. Although the FTSE 100 index is still a little behind in terms of global performance, it has increased more than 10% in the past year. The Dow Jones in New York is up more than 18 per cent, and the wider S&P 500 up 26 per cent.

The same goes for house prices. According to Halifax, the UK saw an increase of 8% in November and Nationwide a rise of 10%.

These figures aren’t estimates made by economists. These numbers are based on what actually occurred, so they don’t pretend to be predicting the worst.

Next year will be a test of our strength. 

This has, of course, been a difficult year for those in hospitality and airline industry. It’s also been very stressful for many. It is evident from the events over the last fortnight, which I am afraid will continue. It has, however, been acceptable in macroeconomic terms.

It would be the same if it weren’t for one cloud that will hang above 2022. Inflation.

This week we have seen the UK numbers, which show consumer prices rising by 5.1% and retail prices increasing by 7.1%. The Bank of England responded by raising interest rates.

There are similar increases in prices in the US and Europe – though the response in increasing interest rates there has not really begun. The problem is, for the majority of people, that only a few have seen their incomes rise by 5-7 percent.

The economy is being squeezed. While there will be strong increases in wages for those with strong bargaining positions, the squeeze from inflation for many people will increase in the months ahead.

What about 2022? We have seen over the last 12 months just how resilient the global economic system has been.

For all the problems – the continuing pandemic, the glitches in the supply chains, the chopping and changing Government restrictions, the pressure to cut back on emissions, and so on – the recovery has continued. While governments have provided assistance, the hard work has been performed by all businesses large and small around the globe.

All shelves of supermarkets have been replenished and restocked. Airlines have been able to fly. With 2.2 billion vaccines being delivered, it is becoming increasingly difficult for airlines to keep flying.

All of this will be necessary to get through the next year. Inflation is what most worries me.

We don’t know how long they could take for the lags to occur between central bank actions and changes in price levels, but it is possible.

As you fill a bucket, imagine yourself. The water keeps going in kettle after kettle. Nothing seems to change. You finally pour one more kettle and the water starts to pool on the floor. This is my experience right now.

Jahr after year the money has been pumped in by central banks. They now find that they have overflowed the globe.

Inflation will be eventually brought under control. However, until then we’ll need to have the strength and resilience necessary to manage all of its economic and social distortions.

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