INFLATION DOG MAY FINALLY BARK AS INVESTORS SEEK NEW ASSETS

Gold, forests, property stocks, inflation-linked bonds - these are just some of the assets investors are pouring money into on the view that the recent explosion of government spending and central bank stimulus may finally rouse inflation from its decade-long slumber, Yoruk Bahceli reported for Reuters on Monday, June 22, 2020.

With the world economy forecast to shrink 6% this year, it may seem like a strange time to fret about inflation. And sure enough, market-based gauges suggest an uptrend in prices may not trouble investors for years. US and euro zone inflation gauges indicate that annual price growth will be running at barely over 1% even a decade from now.

So if inflation really is, as the IMF put it in 2013, “the dog that didn’t bark,” failing to respond to all the central bank money-printing unleashed in the wake of the 2008-2009 crisis, why should investors prepare for it now, especially as demographics and technology are also conspiring to tamp down inflation across the developed world?

The answer is that some think the dog really will bark this time, partly because - unlike in the post-2008 years - governments around the world have also been rolling out massive spending packages, in a bid to limit the impact of the coronavirus pandemic. “We will be pushing, pushing, pushing on the string and dropping our guard, then 3-5 years from now...that’s when the (inflation) dog will start barking,” said PineBridge Investments’ head of multi-asset Mike Kelly, who has been buying gold on that view. “Gold worries about such things long in advance. It has risen through this coronavirus with that down-the-road-risk top of mind,” he added. Even typically frugal governments such as Germany have joined central banks with trillions of dollars in stimulus programs. Investors say even the long taboo topic of debt monetization, where central banks directly fund government spending, may be on the cards.