The BBC mentions volcanic ash driving up Food prices. But as far as I can see, the things that rose hardest from March to April were not particularly vulnerable to delayed flights:
My concern – and everybody’s – should be the problem Chris alluded to that may be happening in the US (via his blog) – a permanent worsening in the unemployment-inflation trade off. If we get higher inflation for each level of capacity utilisation, the economy is in for a very poor time. I continue to hold onto hopes that are still mentioned in the Bank’s Inflation Report – that there is still considerably slack according to surveys, that currency weakness will pass through (commodities are off their highs, driven by world economy weakness), and that working capital will be freed up, which helps drive prices lower.
If these figures DO indicate higher inflation in the future, the consequences ought to be higher Bank rates, a higher currency, and so on. Sep 11 LIBOR futures fell 7 bps on the news, indicating the former at least. If it is any comfort, they are still considerably higher (i.e. rate expectations considerably lower) than at the beginning of May – by 50bps. However, let the comfort end there, because what probably happened since then is a general expectation that euro growth will be much lower. That is not, in anyone’s book, good news.
(PS While I am depressing you all, see this graph of a warming world from Econbrowser.