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Written by: George Prior
Half of investors believe that inflation will remain stubbornly high in the next 18 months, despite signs that the surge in consumer prices might have peaked.
A pulse-check survey of 538 investors on LinkedIn carried out by deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organizations with 80,000 clients, reveals that in 18 months’ time, 50% believe that the headline consumer price index (CPI) will be above 7%. Some 35% said between 4 and 7%; 11% said between 2 and 4%; 3% said it would fall under 2%; and 1% said they didn’t know.
Most advanced economies’ central banks have a target of or near 2%.
Of the poll’s findings, Nigel Green, deVere’s CEO and founder said: “Clearly, most investors are still concerned that inflation will remain a major issue in the short to medium term.
“Given their fears about CPI, it’s reasonable to assume that they believe that in order to fight inflation, which has recently been at multi-decade highs in many countries, central banks will continue to implement rate hikes in the foreseeable future in order to prevent inflationary pressures from becoming entrenched.”
Some of the drivers of the historic high inflation rates we’ve been seeing are subsiding.
For example, commodity prices are coming down; and supply chain issues are decreasing – but, he notes, “we still have rising wages, and this will continue to drive core inflation, the fallout from which will be the worry for investors.”
The deVere CEO says that the monetary policy cycle is now increasingly in-synch globally, and that “this is good news to slow overall demand to address demand-related inflationary squeezes.”
However, as the poll highlights, CPI is still a significant headwind for investors.
“Their concerns are likely to be exacerbated because, due to the high uncertainty clouding the outlook, central banks are finding it difficult to provide basic guidance about the future trajectory of monetary policy,” says Nigel Green.
He goes on to stress that investors must buy wisely in this volatile environment.
“You should bear in mind that long-term and short-duration assets respond differently to rising inflation and interest rates.
“In addition, against the current backdrop, you should be considering less familiar, return-enhancing asset classes which could include venture capital, structured products, cryptocurrencies, high dividend stocks, hedge funds and managed futures, and real estate, amongst others.”
He concludes: “Whilst investors are aware that inflation is gradually being tamed, and it is the first priority for policymakers, it will remain a major issue that will require further tightening from central banks.
“Therefore, sensibly, they will be adjusting their portfolios accordingly to ensure they are best-positioned to mitigate risks to their wealth and to seize the opportunities that volatile financial times always present.”
Related: Stocks Markets Jump on U.S. Inflation Retreat, but Don’t Get Too Carried Away