Gulf will escape two years of high US inflation: Invesco

Gulf will escape two years of high US inflation: Invesco

Invesco chief economist John Greenwood disagrees with the US Federal Reserve’s view that this high rate is a “transitory” effect of the opening up of the American economy. He warns that investors, particularly bond investors, should be wary of maintaining exposure to assets that are vulnerable to inflation at a time when rising prices are likely to erode returns for at least the next two years. Greenwood said: “Central bankers are following an upside-down theory of inflation when they explain the current episode of inflation as a transitory, bottom-up, accidental process delivered by temporary, idiosyncratic or segmented price increases which will soon be reversed.” He added: “Inflation is a top-down process – money driving individual prices higher in a somewhat random, chaotic order determined by which goods and services happen to be in short supply. However, the overall process is one in which excess money eventually pushes all prices higher.” The economist said the M2 money supply in the US has jumped by 32 percent since last February, which has led to a large build-up of cash inside the biggest economy in the world. During this time the Fed has increased quantitative easing, while the US government put millions of