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Inflation just around the corner? #FinanceFriday

Many British companies will struggle to survive this pandemic and need investment. Rolls Royce is just one company taking action to get the investment it requires but how will it pay for that investment? It must pay dividends on the new shares it is issuing and it must pay interest on the bonds. That means increased profits in the future from the engines that it makes but it would appear that fewer engines might be required. It has no choice but to raise prices and many other companies will be raising prices too. I think a period of inflation could be just around the corner.

inflation just around the corner

Inflation just around the corner?

The higher price for aircraft engines will feed into the market and eventually mean air travel will cost more. Other inflationary pressures will come from the airlines themselves and to some extent demand for oil will be subdued but we are seeing more traffic on our roads as people shun public transport and use their cars. Some people are complacent about the virus while others are being really cautious. I think higher inflation is just around the corner as many companies will try to restore profitability. 

Investing

Investing decisions are difficult. Yesterday discussions continued concerning more stimulus in the United States and if the stimulus is approved it will probably trigger similar action in Europe and the UK. More stimulus is likely to boost the stock market and we could see shares prices rising once again. I particularly like the look of Britain’s banks if more QE is announced.

Jobs

We are going to see lots of job losses in the travel and entertainment industries. These industries aren’t essential but desirable. I hope the industries will make adjustments. The football industry can still play matches and they can be televised but they will lose gate receipts. It is a temporary situation and they can survive it by paying players less. The same strategy can be used for other forms of entertainment. They won’t be able to play to a live audience for a while.

Restrictions

Overall I think we’ll see more restrictions, especially on international travel. We need to get the virus under control and transmission rates declining. We could do that by next summer only if the government is realistic and restricts numbers coming and going through our airports and seaports.

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