This is Armchair Economics with Hamish McRae, a subscriber-only newsletter from The i Paper. If you’d like to get this direct to your inbox, every single week, you can sign up here.

This is Armchair Economics with Hamish McRae, a subscriber-only newsletter from The i Paper. If you’d like to get this direct to your inbox, every single week, you can sign up here.

Energy inflation is already hitting us, as you can see at the pumps. Petrol is up 24p a litre since the Iran war began and diesel is up 50p. Food inflation is still to come.

That’s because there are different timescales for a supply shock, such as we are having now, to work its way through the economic system. So the increase in the price of crude oil has had an almost immediate impact on fuel at the pumps. But the effect on the cost of other things will take months to come through, so that inflation as a whole will carry on rising through the summer and autumn – and maybe beyond.

The next big blow will be food. The Bank of England reckons that food price inflation could rise to between 6 and 7 per cent by the end of the year. It could be much higher. For example, data aggregator Helios AI calculates that global prices could be 12 to 18 per cent higher by the end of the year, and then climb even further in the first half of 2027. The argument is that the impact of the war comes in three stages.

The first, which is already happening, is the increase in transport and fertiliser costs. Natural gas is a key feedstock for producing nitrogen-based fertilisers, and there is already a big increase in its price and some shortages of availability. The second, which will come through later this year, will be when crops planted this spring have lower yields because of the shortages and higher cost of fertiliser. And the third stage arrives because some food-producing countries are likely to restrict exports, as they did in 2022 for wheat, beef and palm oil. That will further increase prices.

It is easy to be alarmist, and scare stories catch the........

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