Wednesday, January 19

Global inflation expectations – Moneyweb


FIFI PETERS: Inflation is expected to be a big talking point this week as some 20 central banks meet to decide their latest action to tackle the higher prices in their respective economies. We are receiving an update on which central bank can say what and what this could mean for our Reserve Bank, which will meet in January next year, from Adrian Saville, investment specialist at Genera Capital.

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Adrian, always a pleasure, sir. With the number of central bank meetings taking place this week, which ones will you focus on and why?

ADRIAN SAVILLE: Great to be with you, Fifi. Thank you for inviting me to the program. The ones to always keep in mind are the usual giants, the [US] Fed, the European Central Bank or ECB and the Bank of England. Those are the great drivers of the needle in this environment. The Bank of Japan is also worth keeping an eye on. They are all “usual suspects”.

I think that more than watching their action, we have to watch their language because language has increasingly become a kind of cover for their bets, and it is clear that they are changing their minds. If you go back just three or four months, there was a pretty emphatic opinion and a shared opinion among all the big banks that inflation was what they were calling it. And now you can use transitional e-commerce, in e-commerce. It is becoming increasingly clear that this inflation is not transitory, and that some of the elements that are causing this inflation are quite ingrained, ingrained in the system.

FIFI PETERS: Speaking of the Bank of England, I remember their last political meeting. They caught everyone off guard. The market expected them to start their rally cycle, to raise interest rates. They decided to remain on hold, citing uncertainties about the economic situation.

I think I read that the latest new Covid cases totaled about 50,000 on Sunday. [December 12, 2021]. You now have a situation where Omicron has potentially increased that level of uncertainty. How do you expect them to move this time?

ADRIAN SAVILLE: I think that is exactly the central theme of the dilemma in which they are trapped; in good economic shape, here are two hands.

On the one hand, they have the inflation that they are trying to control and on the other hand, they have an economy that [wants] reboot; And they are trying to take care of households that are in financial distress, which means they don’t want to raise interest rates. Consumers are under pressure, you don’t want to raise interest rates, and you want to encourage investment spending now. Taking care of households, consumers, and investment spending requires low interest rates; to cope with inflation requires high interest rates. There you have the perfect financial dilemma.

My feeling is that they are likely to continue to err on the side of caution and face the enemy of inflation rather than dealing with the enemy of unemployment and economic stagnation, especially given this kind of second wave, steady, unwavering and relentless third wave. .

Now I see Boris Johnson talking about what he called the ‘tidal wave’. That is the extent of your anxiety. I was talking about this now huge wave with over a million infections.

So they are still very, very cautious. But keep in mind that government policy is different from central bank policy.

FIFI PETERS: The Federal Reserve of the United States: mentioned the change of words and the change of tone. Given the US inflation numbers that were released on Friday, although largely expected, how do you think they are likely to move against prices that are now at their highest levels, I think, in 40 years?

ADRIAN SAVILLE: The last time you saw this kind of inflation in the US was in the early 1980s. Here’s a really important message for people in business, for investors, perhaps particularly those who have long been They have worked in an environment, invested in an environment, allocated capital in a global environment where inflation has been low and stable.

You have to go back 40 years to find this kind of inflationary increase. This carries a number of risks to the investment environment. Most obviously, inflation continues to erode your real wealth, so it offers a completely different perspective on how you approach investment problems. But what it specifically means for the US Federal Reserve is, I hope, they’ll stay pretty conservative and defensive, and they’re going to talk like they’re coming up with a fire hose to deal with inflation.

But I think they are more likely to act very conservative, worrying more about the economy than inflation. That in itself recharges or strengthens the system with even greater inflationary risk. So I think this is a real component that will remain resident for the foreseeable future.

FIFI PETERS: It’s fine. I think this is a field where the phrase “talk is cheap” does not apply. Adrian, we’ll leave it there. Thanks for your time. Adrian Saville is an investment specialist at Genera Capital


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