{"id":2933,"date":"2020-01-16T15:30:55","date_gmt":"2020-01-16T14:30:55","guid":{"rendered":"http:\/\/lundgreenscapital.com\/uk\/?p=2933"},"modified":"2021-07-28T09:16:30","modified_gmt":"2021-07-28T07:16:30","slug":"central-banks-not-inflation-is-the-risk","status":"publish","type":"post","link":"http:\/\/lundgreenscapital.com\/uk\/central-banks-not-inflation-is-the-risk\/","title":{"rendered":"Central banks, not inflation, is the risk"},"content":{"rendered":"

Teaser: The global inflation has been fairly stable since long and the outlook remains the same right now, the increasing risk is that the central banks could be challenged by a permanent shift in inflation.<\/p>\n

Currently, American investors have an increasing fear of a rising inflation, or at least, they are buying more bonds that include an inflation protection- the so-called Treasury inflation-protected securities, or simply Tips to make life easier. In this context, there is some speculation that the US central bank (Fed) will allow a higher inflation when they announce their review of their own monetary policy tools, a report that is done every 10 years, so it\u2019s pretty exciting.<\/p>\n

Globally, low inflation has now and then caused some concerns, though on the other hand, it has been a part of the sweet spot for all kinds of securities, to the pleasure of investors. Low global inflation also continues to be one of the megatrends that I expect to continue. Despite a consideration to change the outlook, I keep my primary scenario, which is a continued fairly low inflation around the globe. The arguments remain the same with the surplus of labour force globally, an energy surplus, excess production capacity, and further does globalisation lead to ongoing price competition.<\/p>\n

Though sudden unexpected changes are equal to real risks in the financial markets, as threatening risks are always the unforeseen changes\u2013 but are the central banks ready to deal with sudden changes in inflation based on the current monetary policy?\"\"<\/a><\/p>\n

So far, I think the central banks can sleep comfortably at night despite the recent increase in the American inflation (graphic one). But the global economy might start to be on the move again, at least for a period. The American economy is not heading towards any recession, which has been a fear among some economists for years now, but I expect the fear to fade out.\u00a0 Furthermore, a range of countries around the world will even increase their fiscal spending this year.<\/p>\n

The tensions in the Middle East are now higher, though it does not necessarily mean that the oil price will spike higher, but the risk is of course, is currently rising. As the price on crude oil during 2019 moved in a pretty narrow range (graphic two), then just a minor increase in the oil price this year can generate measurable changes in inflation, which is a rising possibility, or risk. A jump in inflation cannot be excluded, but it\u2019s another risk linked to inflation that I argue is rising.\"\"<\/a><\/p>\n

It is the question about whether the leading central banks are ready to deal with a sudden change in the inflation. The view is not about a decreasing or rising inflation, but whether the American and Eurozone central banks risk being left behind if the global growth and inflation surprises the whole market by moving higher.<\/p>\n

As both the Fed and The European Central Bank (ECB) have cut their interest rates in 2019 without any reason, they moved further away from being in a position where they can smoothly tighten the monetary policy if inflation jumps unexpectedly. Currently, almost everybody in the financial markets, including the central banks, are relaxed about the inflation risk \u2013 also myself, as mentioned.<\/p>\n

But I change my view towards another bigger, and growing risk- that the leading central banks might be behind the curve when it comes to having the inflation under control. I have noticed that US investors are buying more protection against inflation, which happens every now and then. I assess this investor behaviour as a confirmation that if any risk will hurt the financial markets this year, then it\u2019s primarily the bond markets, and that outcome or risk, I upgrade. The downgraded trust in leading central banks being able to handle a jump in inflation plays a higher role in this assessment\u2013 it\u2019s not a forecast of financial markets derailing nor that economies will explode, but it represents another nudge up in the risk that a leading central bank will be left behind the curve if inflation surprises, and central banks being left behind the curve can scare bond investors.<\/p>\n","protected":false},"excerpt":{"rendered":"

Teaser: The global inflation has been fairly stable since long and the outlook remains the same right now, the increasing risk is that the central banks could be challenged by a permanent shift in inflation. Currently, American investors have an increasing fear of a rising inflation, or at least, they are buying more bonds that… <\/p>\n

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Read More \u2192<\/a><\/p>\n","protected":false},"author":7,"featured_media":2934,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-2933","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economic-spotlight"],"yoast_head":"\nCentral banks, not inflation, is the risk - Lundgreens Capital | UK<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"http:\/\/lundgreenscapital.com\/uk\/central-banks-not-inflation-is-the-risk\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Central banks, not inflation, is the risk - Lundgreens Capital | UK\" \/>\n<meta property=\"og:description\" content=\"Teaser: The global inflation has been fairly stable since long and the outlook remains the same right now, the increasing risk is that the central banks could be challenged by a permanent shift in inflation. 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