Dubai PR Network, Online Press Release from Dubai and Middle East
Business, Banking and Investments(Banking & Investments)
Filter PR by
Invesco Chief Economist Warns Investors should be Wary of Inflation-Sensitive Assets
Invesco Chief Economist Warns Investors should be Wary of Inflation-Sensitive Assets
• The surge in inflation is not a transitory phenomenon associated with the opening of economies
• Rising prices are likely to erode returns on assets vulnerable to inflation
• Investors should brace for a two-year period of rising prices
• Gulf region unlikely to experience similar inflation pressures
Dubai - 30, August 2021: At 5.4%, US CPI inflation in June reached the highest level since September 1990, with the core PCE rate (personal consumption expenditures) overshooting the US Federal Reserve’s target rate of 2% by 1.5 percentage points. Nonetheless, after steep increases in the period to the end of March, 10-year Treasury bond yields have generally fallen since then, suggesting that market participants are buying the Fed’s repeated reassurances that there will be no serious threat to price stability.
Invesco chief economist John Greenwood has taken a closer look at the causes of inflation both generally and in this specific instance and concludes that the US Federal Reserve (Fed) may be making the same sorts of mistakes that preceded the Great Inflation in the 1970s.
Contrary to the Fed’s official statements, Greenwood does not believe that this surge in inflation is a transitory phenomenon associated with the reopening of economies and warns that investors, especially bond investors, should be very wary of maintaining exposure to any assets that are vulnerable to inflation at a time when rising prices are likely to erode returns for at least the next two years.
“Central bankers are following an upside-down theory of inflation when they explain the current episode of inflation as a transitory, bottom-up, accidental process delivered by temporary, idiosyncratic or segmented price increases which will soon be reversed,” he argues. Fundamentally, he says, inflation is caused by excess money, a phenomenon that central banks have deliberately re-created after a decade or more of restraint. 
“Those of us who believe that inflation is a monetary phenomenon have watched with astonishment as the Fed has allowed US M2 money supply to be inflated by almost 32% since February 2020,” he says. According to Greenwood, this is what’s behind the “round-trip rebound of prices” from low levels in spring and summer 2020 (such as hotel prices that were cut at the onset of the pandemic and are now being re-priced upwards, leaving prices not much changed overall), which the Fed expects to be merely temporary, followed by the inflation rate falling back to 2% in a matter of months.
According to Invesco’s chief economist, Fed policymakers thus risk repeating the mistakes their predecessors made before Great Inflation in the 1970s. As he explains, the latter ignored so-called transitory factors as “noise” that had nothing to do with monetary policy until they had to concede, far too late, that the US had an inflation problem.
Quoting Albert Friedberg, a money manager and commodity trader from Toronto, Greenwood explains that inflation is inevitably “lumpy”: As excess money leads to rising prices, the price of hard-to-find goods rises far faster than the price of easily found goods, with consumers able to accommodate these price increases because they have more money to spend. As a result, prices of other goods that gradually come into short supply also increase over time.
During the 1970s, the oil price shock was followed by subsequent increases in prices of cocoa, sugar, wheat and other goods. Today, Greenwood points to rising prices of US single-family homes and other goods in short supply such as cars, international shipping rates and electronic chips. “Since these have surged without other prices adjusting downwards, this must mean that higher inflation is here to stay – at least for the next two years while the excess money supply works its way through the system,” Invesco’s chief economist says.
If the Fed has not yet understood what is really behind the recent surge in inflation, it could be a long time before it regains control of prices, Greenwood says. As a result, investors must brace for an extended period of rising prices, shrinking consumer purchasing power and economic slowdown. “Inflation is a top-down process – money driving individual prices higher in a somewhat random, chaotic order determined by which goods and services happen to be in short supply. However, the overall process is one in which excess money eventually pushes all prices higher,” Invesco’s chief economist says.
According to Greenwood, as far as the Gulf region is concerned, the excess money growth that has produced the current episode of inflation in the US is not present. Money growth rates in the UAE remain very subdued, and only slightly less so in Saudi Arabia. As a result, Invesco’s chief economist believes that neither area is likely to experience the kind of inflation currently breaking out in the US.

Posted by : Editorial Team
Viewed 6606 times
PR Category : Banking & Investments
Posted on : Monday, August 30, 2021  10:58:00 AM UAE local time (GMT+4)
Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of
Previous Story : Arab-Brazilian Chamber of Commerce enhances transactions and...
Next Story : VFS Global to Expand Philippines ePassport Renewal Centre Ne...
Email this article Print this article

Share this article with your friends and followers
Back to Section Home

Related Stories

Most Viewed Press Release posted in the last 7 days
LG Honored With 24 Awards for Innovation Ahead of CES 2022 [7700-Views]
ASTRONEF is a New mechanical Masterpiece Presented by Ateliers Louis Moinet [6941-Views]
Pandora and World-Renowned Author, Nadia Owusu, Release a Collection of Festive Stories to... [6892-Views]
Symbolism and Style Defines Tanishq's Exclusive Year of the Fiftieth Collection [4424-Views]
4 FOREO Products That Will Completely Transform Your Skincare Routine [4387-Views]
Big Crown Pointer Date Calibre 403 [4268-Views]
Go Green this Black Friday Cathay Pacific Offers Complimentary Carbon Offset [3969-Views]
Curate your Stress-Free Skincare Regime for Less with Herbal Essentials [3924-Views]
Channelling Power of the Mind and Body is the Key to Success, say Mindvalley Experts at Sh... [3903-Views]
Celebrate UAE National Day with FreshToHome's Special Bouquets [3469-Views]
LG Electronics Announces New CEO and Other Changes to Aggressively Tackle 2022 and Beyond [2927-Views]
Emirates First Group Launches the Region's first PRO Awards to Recognize the unsung Heroes [2854-Views]
SEHA and Abu Dhabi Energy Services begin First Phase of its Energy Savings Framework to En... [2776-Views]
BMW Announce the X7 UAE 50th Year Edition to Mark the UAE's Golden Jubilee [2759-Views]
Malabar Gold and Diamonds Inaugurates New Showroom in Ghatkopar, Mumbai, Maharashtra, Indi... [2714-Views]
Hail in the Festivities with India Gate [2653-Views]
Rome Region brings the Great Italian Cuisine to Expo Dubai [2620-Views]
The Sky Is the Limit for the World Food Programme's Humanitarian Efforts [2604-Views]
The Flormar Beauty Products we are Crushing on this Festive Season [2595-Views]
GEMS Education Schools Celebrate the UAE's Golden Jubilee as they look ahead to Centennial... [2558-Views]
essence cosmetics' (National Day) edit [2534-Views]
The Executive Committee of Ajman University's Board of Trustees Highlights the University'... [2522-Views]
DLD: 5,352 Sales Transactions worth AED 13.12 Billion in October 2021 [2513-Views]
Catrice Cosmetics - Create your own look inspired by National Day!!! [2485-Views]
Get a National Day Super Slam at Denny's for Only AED 50 [2452-Views]
RSS Facebook Twitter LinkedDin on Instagram
Top Sections
Top Stories