Inflation has picked up globally, mostly due to food and
But, inflation is always a lagging indicator of economic
conditions and is likely to fade as global growth slows.
Why is inflation a problem for investors?
Inflation is bad for most investments as it undermines real asset values and pushes up the yields that investors need to invest (and pushes down price to earnings multiples for shares). It reduces the quality of company earnings in the case of shares (high inflation means companies under allow for depreciation) and distorts economic decisions. Sustained inflation has generally been associated with
sustained lower economic growth and rising unemployment. The combination of weak growth and high
or rising inflation (stagflation) is particularly bad news. For all these reasons, inflation is bad news for investors and talk that central banks should tolerate a little bit of extra inflation is crazy.
Read the full Investment Insight article.