The panellists’ views contrasted with those of the audience, which comprised Luxembourg-based fund selectors representing banks from across the continent. Three quarters of these delegates said it’s the threat of deflation rather than inflation keeping them awake at night.
Their views were in line with those of fund selectors during other recent Expert Investor Europe events, but Thursday’s panellists had a different message.
Archie Hart, emerging markets equity manager for Investec Asset Management, argued that real inflation is in fact higher than official figures indicate. “Inflation is low because governments and central banks rig the numbers. For example, house prices are rising again across the continent but you don’t see that reflected in inflation numbers. That asset prices are coming up again might be a sign that inflation is not so much of an issue,” he said.
“Inflation is very low in the Eurozone, but I think it is important to understand the reasons for that,” said Maria Municchi of M&G Investments. “A considerable factor at play here is that we have seen very little pay rises. This indicates that the transmission of liquidity hasn’t yet arrived to the final consumer. Secondly, because of globalisation and increased market efficiency inflation will settle at a structurally lower level anyway.”
Price rise pressure
Rob Burnett, head of European equities for Neptune, agreed with the previous speakers, saying there are no signs for deflation to be spreading across the Eurozone. In this context, Burnett pointed at the introduction of a minimum wage of €8.50 per hour in Germany. As about a fifth of German workers earn a salary below that level currently, this should drive inflation up considerably, he argued.
David Lloyd-Nolan of Aberdeen Asset Management couldn’t agree more with the words of the previous speakers. As a fixed income specialist with a natural inclination to worry about inflation rather than deflation, he even took it a step further. “Our concern is actually how the central banks will be able to stop inflation in five or ten years time. We are not sure whether they will able to time the moment to reverse the taps.”