Come up, we’re sinking
Feeling conflicted about inflation? If so, take comfort in the fact you are not alone. At the moment, everyone on Planet Earth appears to have ambivalent feelings about the topic. In the space of just two weeks, the industry has generated surveys, studies and reports prophesying that either inflation is about to spread across the planet like The Blob, devouring income and destroying wealth, or that the spectre of deflation is about drag us all back to the 1930s.
A recent Mercer survey informed us that 80% of European pension schemes - spooked by quantitative easing and government stimulus programmes - were planning to increase their allocations to inflation-linked and inflation-sensitive assets. And yet the Global Pensions Survey, released just 10 days later, told us that 62% of pension fund managers were becoming less concerned about inflation.
A couple of weeks before, Robeco warned us that euro-zone governments were beginning to lose their enthusiasm for tackling inflation, making it the “forgotten risk”, and then a couple weeks later David Blanchflower, a former member of the Bank of England’s Monetary Policy Committee, told delegates at the CFA Institute Annual Conference that the threat of hyper deflation - not inflation - was what actually keeps central bankers awake at night.
As my colleague Martin Steward pointed out last month, three of the world’s most important central banks have recently done “three different things for three different reasons”, in the process making three different assumptions about the threat of inflation. Logically, not all of them can be right. Some of them must be wrong. What are we supposed to make of this?
Blanchflower, in his speech in Edinburgh, takes an even dimmer view of the matter, arguing that the question is not whether central bankers will be able to avoid making mistakes in future - rather, the question is “what kind of mistakes might the authorities make”.
Back in the 1940s, marketing guru Robert Cooper said there was no dilemma compared to that of the deep-sea diver who hears the message from the ship above: “Come up at once! We’re sinking!”
We know the feeling.