Omicron delivers a welcome dose of disinflation

Nonetheless, falling energy costs should ease at least some of the headline price inflation, thereby reducing pressure on central banks to raise interest rates.

Energy accounted for about half of the rise in inflation in advanced economies; persistent omicron restrictions may reverse this effect.

Equally important, the absence of holidays and subsidized loans can be expected to reduce the pressure on wages, again weighing down on headline price inflation.

For a chancellor who warned that every one percentage point increase in inflation and interest rates would add an additional £ 23bn to public sector debt interest charges, all of this is not totally useless.

I’m not saying that the new restrictions were introduced on purpose to add a deflationary shock to an otherwise overheated economy; that would be absurd. But disinflation is nonetheless one of the consequences.

As I said, I strongly suspect that this will all be very temporary and that by Christmas we will again be concerned about inflation and rising interest rates.

The US stock markets have seen a fairly steep decline over the past month. There have been quite a few sales and a growing sense that something – be it the omicron, higher interest rates, or geopolitics – is about to undermine the long bull market.

The feeling is changing. Where investors were once determined to see the positive even in the most dire news, they now seem willing to exaggerate the negative. Omicron may not be of great concern, but worried investors are increasingly concerned.

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