Inflation Is Not Here To Stay, Say Global Private Bank CIOs

Published on

US consumer price inflation figures seen as noisy and difficult to interpret

Get The Full Ray Dalio Series in PDF

Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q2 2021 hedge fund letters, conferences and more

Inflation Isn't Here To Stay

Singapore: Inflation is not here to stay, according to a panel of leading global private bank chief investment officers, who are convinced that inflation will stay above-trend for a while before coming back down by the end of the year.

During Global Private Banker’s recent Global Private Bank Innovation Summit CIO Morning Bell, moderator Pravin Raveendran, founder, and CEO of AssetOwner.CO, posed the question: Is inflation transitory or here to stay?

All panelists argued that the current 5%-plus level of US consumer price inflation was likely to be a temporary phenomenon and that it would likely return to within the Federal Reserve’s target range of an average 2% by next year.

This week the June US consumer inflation rate came in well above market expectations at 5.4% for the second month in a row. The 0.9% month-on-month increase was the biggest jump since 1980. Used vehicles were again a key contributor to the increase, as were prices tied to the economy’s reopening, including hotel rates, car rents, apparel, and airfares.

Prashant Bhayani, BNP Paribas Wealth Management CIO Asia, is expecting above-trend inflation for a few quarters but not hyperinflation. The categories that showed the biggest increases in the June inflation data tally with Bhayani’s expectations of reflationary price pressures rather than hyperinflation. He says that as the US fiscal stimulus lessens, inflation will come back.

Consumer Inflation Remains In Targeted Range

JP Morgan Head of Investment Strategy Alexander Wolf noted that if you strip out semiconductors and auto prices and look at the median, consumer inflation remains within the Fed’s targeted range. He points out that the two key forces that tend to drive inflation, wages and rents, have not yet become a concern.

“It’s difficult to interpret the numbers because it’s very noisy. We are coming out of a pandemic and there are a lot of demand and supply mismatches. There are a lot of issues with the labour market and unemployment benefits. It’s hard to get a read on it but it will settle down.”

Deutsche Bank International Private Bank Chief Investment Officer of Europe and Asia, Tuan Huynh, doesn’t expect inflation to stay in the 4% to 5% range, also attributing the recent increases in inflation to temporary supply shortages and last year’s base effect.

James Cheo, HSBC Global Private Banking and Wealth Management South East Asia CIO points out that it is extremely rare to have hyperinflation in the system if you look through history and that you need the perfect storm for this to occur. He notes that in the 1970’s the spark was the oil price but now the increase in inflation has a lot to do with temporary price pressures and pent-up demand as the economy reopens. Cheo agreed with the other panelists that inflation would start to stabilize before going into 2022.

About AssetOwner.CO:

AssetOwner.CO is the only privacy-first social platform where sophisticated investors can find, join and create their own investor communities instantly. Whether interested in getting answers to investment questions, gaining fresh perspectives, or connecting with peers and colleagues, our users have access to investors globally.

AssetOwner.CO is complimentary and trusted by investors with total AUM of about US$ 7 Trillion. All conversations are encrypted⁠, and the data shared within your community is owned by the users, not AssetOwner.CO. The firm’s purpose is to bridge the information gap that exists between investors globally

AssetOwner.CO is a Singapore-based company and was founded by Pravin Raveendran, who has held various senior positions in the investment industry, including that of Chief Strategy Officer at the Mizuho Bank hedge fund data and research subsidiary, Eurekahedge.