Markets Tumble on China Property, Energy and Inflation Woes

FTSE 100 and 250 both were nearly 2% down this morning as fears for China property debt meltdown for Evergrande debt contagion waiting for a possible Chinese government rescue plan in addition to a global energy shortage pushing prices up.  They have since recovered a little but current higher inflation and more importantly long term high inflation is the biggest fear for markets.

• Food price increases
• Energy price increases
• Fuel and travel price increases
• Minimum wage increases
• Governments desire for higher inflation to devalue public sector debt.

In the UK, we have already seen food and fuel price increases.  Minimum wage is also set to rise in October.  In Germany there is a huge productivity slowdown due to power/fuel shortages and in Spain, the Bank of Spain Deputy Governor said today that the affect of minimum wage rise agreements in the EU will likely force persistent, long term, higher inflation for a number of years.  Central banks will like this as inflation devalues government sector debt e.g. huge covid-19 borrowing costs.  In the short term, markets will fall but higher inflation long term will artificially push all prices up meaning bigger companies revenues and profits, wages demands up and property prices up in a viscious spiral upwards until central banks intervene with interest rate increases.