Inflation, deflation …or both?

INFLATION, DEFLATION

…OR BOTH?

Ariel Bezalel (Head of Strategy, Fixed Income), Mark Richards (Strategist, Multi-Asset) and Ned Naylor-Leyland, Head of Gold & Silver at Jupiter Asset Management outline their views on inflation, whether deflationary forces still hold sway in the global economy, what role deglobalisation may have to play, and address whether people are even thinking about inflation in the right way.

In this century, and since the global financial crisis (GFC) in particular, the world has been beset by deflationary pressures. Yet today there is much talk that higher inflation could be around the corner, a debate which has intensified since the Fed announced it would pursue Average Inflation Targeting (AIT).

Ariel Bezalel (Head of Strategy, Fixed Income) has been in the deflationary camp for many years, pointing to the powerful structural forces of too much debt, ageing demographics, and disruption from globalisation, technology and low-cost labour. Ariel’s view is that Covid-19 has accelerated some of those trends, particularly with the massive accumulation of unproductive debt this year, which is simply backstopping the corporate sector rather than doing anything truly stimulative like investing in infrastructure. For these reasons, and perhaps controversially, given all the talk of inflation recently, he sees deflationary pressures as actually having intensified this year.

The views of Mark Richards (Strategist, Multi-Asset) are more in the inflationary camp. Mark agrees that structural deflationary forces are in progress, but what’s changed for him is that for the first time in decades he can see a coherent narrative for why higher inflation may materialise. Deglobalisation is part of that, in Mark’s view, as the impact of China entering the global labour market and global supply chain in the late 90s/early 2000s – which depressed labour’s bargaining power – is now coming to an end.

Ned Naylor-Leyland, Head of Gold & Silver, believes that people are not looking at deflation in the right way. He doesn’t see it as an either/or debate, saying that the global economy can have both inflation and deflation simultaneously, and in his view it does. Ned recognises that deflation exists in the monetary sphere, as the end result of about 40 years of policy decisions that have supported states and corporates at the expense of repressing the consumer. But he argues that if you asked people on the street about their experiences with inflation, you’d struggle to find anyone who thought their cost of living was going down.

There are no simple or easy answers to the question of inflation. The views held by Ariel, Mark and Ned reflect to some extent the conversations happening in the wider market. What all three agree upon, however, is that regardless of how things play out there will be opportunities to make money somewhere.

If you require any further information or have any questions, please do not hesitate to contact the Jupiter intermediary support team:

T: 020 3817 1063 E: intermediary-sales-support@jupiteram.com W: www.jupiteram.com

Please note: Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the individuals mentioned at the time of writing are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances.

Important Information: This document is intended for investment professionals and is not for the use or benefit of other persons, including retail investors. This document is for informational purposes only and is not investment advice. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given. Holding examples are for illustrative purposes only and not a recommendation to buy or sell. Issued by Jupiter Asset Management Limited, registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ, United Kingdom, which is authorised and regulated by the Financial Conduct Authority. No part of this may be reproduced in any manner without the prior permission of JAM. 26226