Are fears of inflation overblown?

In our view, fears of inflation are overblown. There are a number of factors, in particular globalisation, the vast build-up of debt globally and also demographics – the population is ageing fast, all of which are having a dampening effect on inflation. Pricing power is hard to come by and the risks of a Japan-type scenario of little or no inflation are increasing, all other things being equal. Of course things are never equal, and indeed the possibility of this cycle ending with a much more extreme outcome are increasing.

Where do the risks on inflation stem from?

The risks from inflation stem largely from populist policies, and we are acutely aware of this with Brexit at the forefront of our minds. So the possibility that central banks’ balance sheets could be taken under control, potentially with the ‘people’s quantitative easing’ or the much talked-about modern monetary theory, could mean that the future looks very different from the past.

How should we navigate this new era from an investment perspective?

The best way to navigate this from an investment perspective is to think about really creating a smooth journey for DC members, which of course is at the centre of what we’re trying to do. Taking account and calibrating the portfolio to really think about metrics such as inflation is really key, and in order to do this we can, for example, minimise exposure to economically sensitive assets in the portfolio. And this should have the effect of achieving a much smoother ride for DC members.

Head of defined contribution Catherine Doyle discusses the current inflation climate

Newton defined contribution investments

Your capital may be at risk. The value of investments and the income from them can fall as well as rise and investors may not get back the original amount invested.

These opinions should not be construed as investment or other advice and are subject to change. This material is for information purposes only. Any reference to a specific security, country or sector should not be construed as a recommendation to buy or sell investments in those countries or sectors. Please note that holdings and positioning are subject to change without notice.