What should wine investors be considering in light of the predictions this morning that inflation could rise to hit 5% in Spring 2022 and that the Bank of England is more than likely to raise interest rates next month.
BoE Chief Economist – Inflation could rise to 5%
The new Chief Economist at the B.o.E, Huw Pill, is quoted in the FT this morning as stating that his decision to vote at the Monetary Policy Committee meeting on the 4th November is “finely balanced” and that “I think November is live”. Expanding on this he observes that
- an inflation level of, or around, 5% would not be unexpected and “that’s a very uncomfortable place for a central bank with an inflation budget of 2% to be.”
- With UK output approaching pre-pandemic levels, the BoE is now looking at a policy shift from stimulating the economy through ultra-low interest rates and QE, to concentrate on managing inflation.
- The Bank’s new Chief Economist is reputed to want to get rid of the former Governor, Mark Carney’s, policy on forward guidance on interest rates.
- Pill believes that the UK economy has weathered the pandemic well so far and the expected long-term economic impact of the pandemic is not much more than 1% of GDP. This forecast is thought not to be directly aligned with Chancellor Sunak’s Budget predictions to be presented next week.
There is an expectation that rising inflation will be temporary and will be managed through increasing interest rates. We don’t know to what extent and whether these changes would be permanent. It is an unfolding scenario with some high stakes over the next six to twelve months. We are also heading into winter with rising Covid-19 numbers and unpredictability in energy markets and supply chains.
So, what do rising inflation and interest rates mean for wine investment?
- During historic periods of economic uncertainty and volatility in financial and commodity markets, fine wine values have grown.
- 2021 has seen a record performance so far and there is no reason to see this stopping in the foreseeable future.
- Wine investors should look to strengthen their portfolios with blue-chip Bordeaux and Burgundy wines where values still offer potential for growth and further regional diversification into top performing Champagne, Italy, California and Rhone wines. The broadening secondary market in wines from these regions is highlighting investment wines with the potential for strong returns in the future.
- Investment wines are a key asset to hedge rising inflation.
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