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"The data suggests we could be at peak inflation"

Jan 12, 2022

Redacción Mapfre

The markets responded strongly to U.S. Federal Reserve chairman Jerome Powell’s remark that he wouldn't hesitate to raise interest rates if inflation remains problematic. Amid soaring inflation in the United States (7.1%, a 40-year high), MAPFRE Inversión chief economist Alberto Matellán believes the Fed’s aggressive message was perfect for the current context: “Real interest rates have hit a historic low, and they must react to that by putting rates back to more normal ranges,” the expert said in an interview on Radio Intereconomía, while clarifying that they would take time to reach a decision.

In fact, although the latest price indexes are very high (both in the Eurozone and in the United States), with a marked impact on savings and economic activity, there is every indication that “we could be reaching peak inflation.” Even so, "apart from the figure, the important thing is the trend,” the economist said. "The data we see in the next 2-3 months will be key to envisioning the scenario for this year."

But are Europe and the United States experiencing the same inflationary process? No. In terms of core inflation (5.5% in the US and 2.6% in Europe, more than half), the inflationary factors are completely different on either side of the Atlantic. The important thing is for these prices, conditioned by external factors, "to lead to the internal process.” In Matellán’s opinion, it would be a mistake for the central banks to “go overboard with monetary policy in any way: raising interest rates when unnecessary (as in 2008 with temporary inflation), which could be more dangerous, or doing nothing when perhaps it is indeed necessary.”

Amid this inflationary scenario, he reminds individual investors that certain assets may be past their prime and no longer go up in price, and the same can be said of certain portfolio assets, such as commodities, which are highly volatile in this context. For all these reasons, “the goal of combating inflation in one's portfolio must be left to professional managers, who actively manage investments as well.”

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