There’s a growing suspicion, reflected in bond markets everywhere, that inflation may not be dead after all, but is merely in a deep sleep. In recent years the prices of conventional and index-linked UK government stocks have mostly moved in the same direction, but since the summer conventionals have fallen while the linkers rose.

The cost of this protection is now a record 2 per cent – today’s buyer of a 10-year linker is guaranteed to lose that amount each year on his investment in real terms. Perhaps he has read the report from the National Institute, which forecasts inflation at 4 per cent, as dearer oil works through the UK economy. The purchasing managers are already softening us up for price rises after the pound’s plunge, while the Bank of England says its previous guidance of another cut in interest rates has “expired“. Perhaps it died from lack of credibility.

However, things may not be quite so simple. Morrisons can raise the price of Marmite, but Nielsen’s index shows continuing deflation, with shop prices falling by 1.7 per cent last month, following a 1.8 per cent decline in September. Competition is relentless, and may get more intense. A thoughtful analysis from Morgan Stanley points to the differences between the last time sterling fell heavily, in 2008, and today.

Then there was effectively a cartel between the supermarkets, and price rises were passed on. This opened the door to the discounters, who were also able to find suitable sites following the recession. The result was a doubling of their market share, to today’s 10 per cent.

Despite the subsequent efforts of the big four to get competitive, Morgan’s analysts calculate they are still 18 per cent dearer than the discounters. Any attempt to raise prices now would drive more shoppers to Aldi and Lidl. Like the big supermarkets, they source about half their produce from the UK.

Looming over all this is the shadow of Walmart, the owners of Asda. In 2015 Asda earned the highest margins of the big four, but its market share plunged. Any attempt by Tesco to Marmite its customers might trigger the Walmart response that the industry is expecting. So whatever the economic theory says, inflation is not going to wake up any time soon.

Cash will do nicely, thanks

Here’s a shocking suggestion: pay executives the same way as their workforce – in cash. Agree the amount beforehand, so the only difference between the CEO and the receptionist would be an obligation for the CEO to use some of his vastly higher rewards to buy shares in the company he ran.

This suggestion comes from the oxymoronically-named Institute of Business Ethics, and is not quite as bizarre as it sounds. The current system is little better than a smokescreen to cover paying the boss more, and has spawned a whole new useless army of remuneration consultants. The institute acknowledges that a sharp bump-up in basic pay to compensate for the loss of lovely bonuses would be awkward, but believes that the gain in transparency would be worth it.

Well, maybe. We’re all in favour of transparency nowadays, especially from other people, but the current system supports the fiction that the CEO has, almost singlehandedly, met all sorts of demanding and exciting targets, and is then rewarded accordingly. Curiously enough, many of them like it that way.

A signal to the Admiral

Warning! Do not use exclamation marks on Facebook! In its search for that holy grail of motor insurance, high premiums from safe drivers, Admiral wants to pick out risk-averse youngsters by studying their Facebook posts. Excitable posters will be deemed worse risks, while calm, moderate users get a discount. Over time, Admiral could refine its tests. It’s an imaginative use of big data.

Oh no you won’t, responded Facebook. Big data ‘R’ us, not you. Had you read our interminable list of terms and conditions, you would have found something there to stop this sort of thing, or at least our lawyers would. And if that’s not clear enough, we’ll fly the flag letter X which, as every Admiral knows, means “Stop carrying out your intentions and watch for my signals.”

This is my FT column from Saturday

 

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