The majority of countries in the global economy have been in a secular downward inflation trend since the Oil crisis in the 1970’s. The central banks of Europe and Japan have been fighting negative inflation for almost a decade. The new US administration is unleashing a ‘war-time’ budget to fight the impacts of the pandemic and the US Fed is on their side, buying hundreds of billions of dollars of government debt to help keep interest rates at historical lows.
The question is, will the US administration budget be the catalyst for the re-emergence of inflation and rising interest rates? Low inflation and equally low interest rates have provided the environment for very significant capital appreciation of most financial and real assets. Re-emergence of inflation and ‘normalisation’ of interest rates may have a very substantial negative impact on asset valuations.
This is the question of our time for all investment professionals to consider and CFA Societies Australia has put together an inflation focused ‘series’ to inform members of the potential implications of any rise in inflation. We hope you will join our events – Rob Fowler, CFA, Board Member, CFA Society Melbourne.
Rob Fowler, CFA
If you would like to get in contact with CFA Societies Australia Professional Learning Committee about this Series, please email us here.
The Inflation Series kicked-off in February with Modern Monetary Theory, Outline and Implications and we will hold an event each quarter this year.
It has been over 40 years since the global economy has suffered an inflation shock and we may have another just around the corner. This series on the potential impacts of inflation should be a ‘must view’ for any investment professional that has not already considered deeply the potential impacts of rising inflation on asset prices and returns.
Modern Monetary Theory (MMT) has gained prominence in the last few years. MMT brings together several long-standing elements of economic theory about how financial flows work, leading to the argument that because a government issues its own currency it has no financial constraints, so budget deficits don’t matter.
MMT contrasts considerably with the mainstream (neoclassical) view dominating current economic debate. While some commentators accept that MMT may have some valid arguments when it comes to the role of budget deficits, opposition to it has been strong.
The response by governments around the world to the global COVID-19 recession has seen both monetary and fiscal stimulus through the lens of the mainstream economic view, but some comment has linked it to MMT.
A walk through the history of inflation, using history to guide a contemporary context.
Hear Guy Bruten, AllianceBernstein’s Chief Asia-Pacific Economist, share lessons learned from the past and how that experience can cast light on THE key question of whether the near-term inflation outcomes are likely to prove “transitory or persistent”.
Many investors use standard inflation indices, such as CPI or PPI, to track inflation over time. There are important limitations as these indices only represent inflationary pressure on producers and consumers instead of providing information on the investment impact of inflation.
In assessing the Investment impact of inflation, it is equally important to study the sources of inflation in addition to actual inflation level. As an example, the market impact of inflation from energy prices will be very different to the market impact of inflation from an overheating economy. The different inflation sources will exhibit different warning signs and require unique mitigation strategies. Positioning a portfolio to mitigate against one source may not help if it comes from another source.
This session will outline the five most likely sources of inflation over the coming decade, presenting their mechanism, warning signs, potential mitigation strategies. Nick will also share his outlook and expectations for future inflation.
Coming Soon in September 2021.
This session will outline the five most likely sources of inflation over the coming decade, presenting their mechanism, warning signs, potential mitigation strategies.
5 August 2021
3:30 pm-4:30 pm AEST
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