Carmignac: we don't fear inflation

Fears of spiralling inflation have been heightened by the latest round of monetary stimulus, but Carmignac’s Eric Le Coz believes this scenario is unlikely.

In the French firm’s latest monthly letter, deputy managing director Le Coz says while global inflation is a potential knock-on effect of central banks expanding their balance sheets both the ECB and Fed appear to have things under control.

‘The structural reforms and the austerity measures carried out in all European countries will, of course, strengthen the deflationist pressures that weigh down on the eurozone’s real economy,’ said Le Coz.

‘Should we, in this context, fear spiralling inflation due to the ECB’s actions? That does not seem justifiable in the short term.’

The ‘sterilised’ approach of the ECB should help avoid any uncontrolled rise of the value of the euro, said Le Coz (pictured below).

The region’s high unemployment levels and increased fiscal pressures also make it difficult to imagine a demand boost which could create an environment where inflation spiralled.

In the US, Le Coz said the Fed has justified its actions by saying that boosting liquidity could in turn help cut unemployment levels.

While the US economy’s situation remains in limbo until its presidential elections, Le Coz was positive on its long term prospects.

‘This political willingness and proactive approach adopted by the Fed, by guaranteeing a negative return in real terms for no risk assets, allows us to anticipate a revaluation of long term assets, with equities leading the pack, despite a growth which will at best be anaemic.’

‘Will the monetary expansion resulting from the Fed’s additional measures lead to inflation levels which they can’t control? We do not believe this risk will materialise in the short term.’

He pointed out, however, it is still not known whether maintaining low interest rates in the long term will really boost credit demand.