UBS On-Air: Paul Donovan Daily Audio 'Socking it to inflation?'

0:00Good morning. This is Paul Donovan, Chief Economist at UBS Global World Management. It's five o'clock in the morning, London time on Wednesday, the 22nd of April. US President Trump has retreated from the previously stated assertion that the Gulf War ceasefire would end today, unilaterally extending the ceasefire in the hopes that the Iranian government might in the future attend a peace conference. The US blockade is still in place, but as it appears ships carrying Iranian oil have been able to avoid that, the economic consequences of the US action seems somewhat more muted. That does mean that projections of oil shortages need to be adapted in a modest way to account for the increase in supply from Iran. Obviously, the scale of Iranian supply in no way compensates for the overall Iranian closure of our moves. The economics of the situation is therefore a little more focused on what Iran now does. US Federal

1:04Reserve Chair Will nominee Warsh had a confirmation hearing in front of a Senate committee yesterday pledging not to be a sock puppet for Trump. For perhaps the first time in over half a century, markets will need to be convinced that Warsh is not in fact a sock puppet or even a muppet, and that conviction is only likely to be created through observing Warsh's actions in office. For now, the point is rather moot as Warsh's confirmation is being blocked by the legal investigations into the Fed, which might be perceived as a challenge to the central bank's independence. Warsh did advocate changing the inflation numbers that the Federal Reserve focuses on to come up with figures that are closer to the Fed's inflation target. While the truth about inflation is a complex subject about which very interesting books could be written, retailing at an attractive price, suggesting changes to the Fed's target to use numbers that are lower is not necessarily going to help with consumers

2:06confidence around inflation control. The US affordability crisis is built in part on the difference between inflation perceptions and inflation reality, but the solution to that may not be to alter the inflation reality. UK March consumer price inflation data is due. This will reflect the rise in petrol prices, of course, but there will be no consequences as yet from the increased electricity pricing because that hits with a lag, and the government's aim of separating the link between electricity and gas prices in a world of renewable electricity generation may mute that link at some point in the future. The Bank of England has enough economists to know what they are doing, and so should not be reacting to a single market's price move in the way that the bank really cannot control. It is the underlying inflation pressures and the risks of second round inflation effects that really matter here. We're

3:09positively swimming in central bank speakers today, not from the third, which is in its customary pre-meeting blackout, but from the ECB and a token speaker from the Bank of England. The range of views from the ECB speakers will have be of interest to the financial community. The European Central Bank is starting from a neutral monetary position, and so there has been no urgency to cut rates this year. The lack of a need to cut has however led to speculation about a rate rise in response to the higher oil price. Absolute second round inflation effects, which cannot possibly be visible at this stage, a rate increase would be a policy error. So markets are keen to see which members of the ECB are inclined to commit policy error. That's all for today. Have a good day. This material has been prepared and published by the global

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