Inflation Threat Unlikely: Allianz

Andreas Utermann, Global Chief Investment Officer at Allianz Global Investors/RCM, provides his outlook for 2012.

Inflation

Our prediction for 2011: We would see diverging inflation trends, with continued moderate inflation within the Central banks’ comfort zone in the more highly indebted countries, and higher inflation in the countries with trend or above trend growth.

“Indeed, inflation rates have risen in emerging markets, in some cases 10% or more. Central banks have reacted accordingly and embarked on a tightening cycle. In the second half of 2011 rates peaked but even now remain at comparatively high levels. In the developed world, inflation rates are clearly below the levels witnessed in emerging markets. However, they have also risen to new cyclical highs and are now above the levels which central banks are aiming for in the medium term.

“In our view the rise in the oil price at the beginning of the year is not the only explanation for a pick-up in commodity prices. Core inflation has started to increase as well in developed markets; in emerging markets, wage pressure has added to price increases.

“We think that the cyclical moderation will trigger a moderation in inflation rates again. Given the low level of real interest rates, ongoing central bank balance sheet expansion, and our expectations of continued solid growth in Asia, we don’t expect a return of deflationary fears, despite weakening growth. On the other hand, with demand for money being strong in the current period of deleveraging, nor is inflation likely to be a threat in the foreseeable future.”