GRIMALDI & PARTNERS – Is the rise in inflation rates just a temporary phenomenon?

von Silvano Grimaldi, Grimaldi & Partners

Zurich - The significant increases in the inflation rates measured by consumer price indices in recent months - especially in the USA, D, GB and in some other currency areas - have understandably aroused fears of inflation. In the euro zone, however, the rise in the consumer price index was only half as high as in Germany, and in Switzerland it is barely noticeable. Are the inflation worries justified? Silvano Grimaldi, CEO of the independent asset management company Grimaldi & Partners AG, gives you the answer.

Investors are now wondering whether these price rises mark the beginning of widespread inflationary processes? Financial market players and economists are currently still assessing the further course of inflation developmentsquite differently. However, the central banks predominantly assume that, above all, statistical base effects together with certain special effects (e.g. capacity and delivery bottlenecks, increased freight costs due to a lack of transport capacities, changes in various tax and duty rates, etc.) have only led to temporary oversubscriptions in inflation developments and therefore no rapid changes in monetary policy are necessary either.

These basic and special effects will certainly gradually expire. The US Federal Reserve and the ECB therefore anticipate significant declines in consumer price indices as early as 2022. However, there are some structural influencing factors- such as sustained expansive monetary and fiscal policies as well as increasing protectionism around the world and the weakening of globalization, which is dampening price increases - which may well result in inflation rates being somewhat higher in the coming year and at least in the medium term than before the outbreak of the pandemic will be. Second-round effects (e.g. higher wage demands due to the increased inflation rates when labor market conditions improve again, higher producer prices sooner or later reflected in the consumer price indices) cannot be completely ruled out.

One of the decisive factors for such second-round effects will be the development of inflation expectations, which have already risen, especially in the USA. Nevertheless, despite the generally good overall economic development, due to the unsatisfactory employment trend and a renewed growth risk possibly due to variants of the corona virus, the US Federal Reserve is for the time being without tightening its monetary policy. However, inflation expectations in the euro zone have hardly changed so far. The ECB has therefore not yet sent any signals that a change in monetary policy will be undertaken in the near future. Obviously, it is still assumed that the target for inflation rates in the euro zone can be met in the medium term. An expansion of the money supply is only a necessary and not yet a sufficient condition for accentuating inflation rates.

The key interest rates in the important currency areas - which anyway only influence long-term interest rates, but do not determine them - will therefore not change significantly in the next year. Although the low interest rates are depressing the returns on government and corporate bonds, they not only make it easier to service the globally increased national debt, but also favor the price development of growth stocks hoping for future profits (e.g. tech stocks).

Conclusion: The environment for equities remains positive

The weaker annual rates of change in GDP and corporate profits to be expected in the coming quarters could be interpreted in such a way that the peak of the growth dynamic has already been exceeded. However, the quarterly or monthly changes show that the economic recovery processes are initially continuing. The environment for equities will therefore remain positive, even if there is always the risk that prices will temporarily weaken every now and then. Thanks to the positive development of corporate profits, the high valuation recorded for many stocks is justifiable. However, certain reservations have to be made in this regard for US stocks, although the KVGs of the Nasdaq and the S&P 500 have declined somewhat since the beginning of the year. They are still well above the values ​​of previous years. Nevertheless, equity investments remain the best alternative to achieve a reasonable return on investment in the coming period!

© 2021, Grimaldi & Partners AG

GRIMALDI & PARTNERS Vermögensverwaltung ist eine renommierte unabhängige Schweizer Vermögensverwalterin mit Domizil in der Stadt Zürich. Die Hauptträger Silvano Grimaldi, lic.oec. HSG und Dr. iur. Reto A. Lyk sind profilierte ehemalige Banker mit bestem Ruf und mit über 25 Jahren beruflicher Erfahrung in der Vermögensverwaltung auf dem Zürcher Finanzplatz. Das hochkarätige Führungsteam sichert eine einwandfreie Führung der Geschäfte zum Wohle der Kundschaft. Grimaldi & Partners steht für eine unabhängige, neutrale, transparente, kostenbewusste, leistungsorientierte Vermögensverwaltung mit besserem Vermögensschutz.


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