I saw CLSA’s Russell Napier this week. He told me the new Ferrari SA Aperta Roadster is sold out. You might find that more irritating than interesting, given they cost about $450,000.
But, while the car is super exclusive, that it’s been snapped up so fast might point to something serious. Add it to the $12.3m spent on ex-Lehman Brothers’ art at auction last month; the continuing rise in luxury handbag sales (sales of luxury goods via shops owned by the luxury brands are up 20% so far this year due to a rebound in the US); and the fact that a Damien Hirst piece (The True Artist Helps the World by Revealing Mystic Truths) from 2006 sold for £3.5m, mere minutes after this year’s Frieze Art Fair opened its doors this month; and it might, just might, suggest that the very well off are losing faith in the value of holding cash.
For the last two years we’ve worried about deflation. It happened just after the crisis, but only briefly – the Retail Price Index (RPI) fell 0.4% year-on-year in February 2009. But we now suspect that, due to collapsing currencies and quantitative easing, it won’t be back for a while. Those who aren’t convinced keep telling us it isn’t so. They come up with various excuses for the fact that both Consumer Price Index (CPI) and Retail Price Index (RPI) inflation are well above comfortable levels (it’s VAT-related, it’s short term, the core numbers are lower, etc).
But however academically valid those arguments may be, the fact remains that consumers know RPI is running at 5% and have noticed that most trips to the shops come with a shock of some kind. This week, for the builders putting in our new bathroom, it was the price of wood panelling (up 40% in 12 months) and white spirit (up 30%). For me, it’s been Lindt 70% chocolate. It used to cost around £1.30 a bar. Now Sainsbury’s is trying to sell it to me for £1.79. That shifts it straight from everyday pleasure to special treat in my house. That’s not good. It also makes me think about stockpiling the stuff for Christmas.
If the price can go up 35% in under a year, will I still be able to afford it come December?
You will see where I am going here. Inflation is already with us, so we are right to be frightened of it. But nothing will drive it up faster than us being frightened of it. Most of us don’t go out and buy a new Ferrari when we think prices might be rising, or that our currency is losing its worth. But we might get a new washing machine slightly earlier than we intended. This matters, because what will really kick off inflation is not the amount of money around, but the speed at which it changes hands. The faster it goes, the more likely it is to stimulate inflation. With that in mind we think it is time to stop worrying about deflation and time to start protecting our assets from inflation.