Inflation fears premature

Heightened fears about inflation are overplayed and could negatively impact investors’ portfolios, according to deVere Group.

Nigel Green, deVere Group chief executive and founder, said the warning came as the US Federal Reserve this week upgraded its growth forecast to 6.5% from 4.2% previously for 2021.

“As the world increasingly looks towards a post-pandemic global economic rebound, inflation fears have been heightened in recent weeks,” Green said.

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“These concerns are now likely to be exacerbated as the Fed, the central bank responsible for the world’s largest economy, has dramatically upgraded its outlook. This can be expected to further fuel rhetoric about inflation.”

Green said it had been noted by some that as inflation climbed, we could get higher interest rates which could lead to lower stock prices.

“I think that we should expect a short-term jump in prices as economies re-open, however, longer-term inflation fears, due to pent-up demand are premature and are being overplayed,” Green said.

“History teaches us that a diversified portfolio has typically beaten inflation over time. This was true even in the 1970s - a time when inflation fears were rife in many quarters.

“Back then, the Fed was late to step in. Should inflation jump too far now, the Fed is highly unlikely to repeat the same mistake.” 

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