The past six months have been torturous for investment portfolios, with no place to hide. Bonds and equities are in the negative, while holding cash in the bank would have dented your purchasing power. We all know that inflation is the clear culprit behind the current economic malaise.
Now the real fear is that, since general prices have been rising for the past 12 months, higher inflation may have become malignant and entrenched in the economy. By raising interest rates in quick succession, central banks seem to be exercising an unflinching resolve to fight surging inflation.
The market in general appears to be accepting the narrative that central banks may just succeed in capping inflation and bring it back down to the modest level of 2%-3% a year. But don’t be so sure, just yet!
What if central banks cannot bring inflation down sustainably because the price pressures resulting from the Ukraine-Russia war and global supply chain disturbances are essentially out of their control?
What will happen if the Reserve Bank of Australia, after excessive interest rate increases, becomes nervous seeing the economy sink into a recession, resulting in high unemployment, social unrest and pressure from politicians, and yet it still cannot get inflation down far enough? Would it then try to cut rates quickly?
Politicians just print more money
This story is from the August 2022 edition of Money Magazine Australia.
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This story is from the August 2022 edition of Money Magazine Australia.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.
Already a subscriber? Sign In
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