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The PIN Fund Slumps in Q1 Due to Rising Inflation and Interest Rates

Peter Hemple reviews our fictional fund consisting of 10 property-related companies

The UK PIN Fund fell by 15.8% in Q1 2022, reducing the value of the Fund from £250,000 to £216,000 in just three months, while the FTSE 100 increased by 1.6% thanks to a high prevalence of commodity producers.

Our fictional Fund, which was formed in 2014, had already endured the EU referendum followed by the first global pandemic for a century, and it is now attempting to cope with the biggest war in Europe for almost 80 years, involving two countries with a combined population of almost 200m.

The even bigger problem for the rest of Europe is the fact that Russia is basically the continents sugar daddy, supplying it with oil, gas and diesel. The cost of all three have soared of late and this has pushed up inflation substantially. At the time of writing, the Office of Budget Responsibility (OBR), which publishes economic forecasts twice a year, has warned that Russia’s invasion of Ukraine could have ‘major repercussions for the global economy’, and push energy, petrol and food costs even higher.

In the 12 months to February, consumer price inflation (CPI) in the UK rose 6.2% on average, which is the fastest rate for 30 years. But the OBR has suggested that the fallout from the war in Ukraine could push inflation to a 40-year high of 8.7% in the final three months of 2022.

While much of the media focus in the UK has been on gas prices, the shortage of diesel across Europe is a far bigger threat to inflation this year. In Europe, half of the cars still use diesel, but according to Francisco Blanch, global head of commodities and derivatives research at Bank of America, that is only half the problem. He told CNBC on 30 March: “I think it’s very problematic. Trucks run on diesel, trains run on diesel, and planes run on jet fuel which is also diesel…whether it’s moving things around the world or harvesting or producing anything in a factory. Almost every human activity has some element of diesel consumption.”

The problem for Europe is the fact that half of its diesel is imported from Russia and Russian refiners are currently cutting the processing rates of diesel fuel. Many oil industry experts are now calling it a ‘diesel crisis’ in Europe and warning that fuel rationing across the continent could start soon. Suddenly, an inflation forecast of ‘only’ 8.7% in the UK by Q4, could be viewed as optimistic.

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