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Q3 commodities 'correction' to affect inflation

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GLOBAL - Oil and other commodities will enter a "cyclical correction" in the coming quarter, which will have an impact on economic growth and inflation, according to research by ABN Amro.

Didier Duret, chief investment officer of the company's private client banking arm, says in his third quarter outlook "one of the major knock-on effects will be felt in inflation."

He argues since the worst of the credit crunch may be perceived to be over by authorities, interest rates will start to be lifted again.

The research claims "the vicious trend" that has tied together commodities, a weak dollar and inflation is about to reverse, following which commodities could enter a correction.

More specifically, the outlook suggests the current hype surrounding commodities will drain away, globally pushing down headline inflation, and kick-starting gradually reduction in core inflation in developed economies.

Nonetheless, Duret cautions what he brands as an "inflation genie" is "trying to get out of the bottle," warning investors they need to position themselves actively to head off this threat to their asset base.

Niche or thematic investing, such as new energies, agribusiness, and sustainability, is one of the ways to hedge inflation, argues the study, which gives also a wider view on equities, bonds, alternatives and cash investments.

A similar claim was earlier made by Mercer's Tim Gardener late last month, when he argued illiquid assets are the greatest future risk for investors in an era of climate change. (See earlier IPE article: ‘Illiquid assets are greatest risk - Mercer')

If you have any comments you would like to add to this or any other story, contact Carolyn Bandel on +44 (0)20 7261 4622 or email carolyn.bandel@ipe.com

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