The average inflation rate in Organisation for Economic Co-operation and Development (OECD) countries has risen to its highest level in over five years which has sparked debate about whether such a “retro revival” of the 1970s global economy is imminent.
As Chris Bailey, European strategist at Raymond James, warns: “For anyone invested in the global financial markets, a little bit of inflation threatens to upset the world of ultra-low bond yields, ultra-low interest rates and potentially much of the underpinnings of high equity market valuations.”
Still, Bailey and others are quick to stress today’s global economy is in a very different place from the 1970s.
For starters, oil prices remain relatively stable having slumped somewhat in recent years, while ever cautious central bankers have presumably learned from the lessons of the past.
“A bigger material impact could come via exchange rates – specifically a higher dollar which raises oil and general input costs, manifesting in higher costs on food and other consumer goods,” Bailey explains.
"Investors should act now to ensure portfolios defend against rising inflation"
“Fortunately, with the dollar already highly favoured it is not clear where the marginal buyer for the American currency will come from to push it even further higher, an occurrence which seemingly also concerns the new US president.”