For the first time in years, inflation pressures could be building, according to Ninety One’s (formerly Investec Asset Management) outlook on inflation for 2021.
We haven’t had a sustained period of price rises for years and contrary to some, we believe the coronavirus might be the catalyst that finally lets inflation loose. Now is the time that investors should think through the portfolio implications of a more inflationary environment.
Nevertheless, conditions are quite different now in the wake of COVID, than those experienced after the Global Financial Crisis (GFC). A decade of subdued inflation which followed explains in part why many investors are sanguine about the inflation outlook now. We see a significantly higher risk of inflation in the coming 10 years than was experienced during the last 10.
“We believe that inflationary pressures are building due to a combination of factors. As governments are trying to deal with the immense economic and social challenges of the pandemic, we have witnessed recovery-motivated monetary expansion and shifts in government and central-bank policy. Additionally, in some countries deflationary demographic effects are weakening; while the retreat from globalisation (which for many years has held down prices by shifting production to low-cost locations) may also fuel price rises.”