Insync Funds Management (Insync) says inflation is not currently on an upwards trajectory, with further signs that momentum is significantly slowing.
In its recent industry White Paper: Will the second half and beyond for equities be different to the first?, (the White Paper) Insync said five common assertions had been stirring the pessimism pot, one of which was that the resumption of rising interest rates, and therefore inflation, is firmly established.
“We now have further evidence that this is not the case,” says Insync Portfolio Manager, John Lobb.
“The incredible rate of money creation during 2020 and 2021, of 20-30% p.a., has dramatically slowed to the average of the historic range of 5-6%. Excess money was chasing an interrupted supply of goods and services.”
Mr Lobb also says that inflation of the price of goods leaving the gates of Chinese factories, which was running at 13-14%, has now dropped back to 4 per cent.
“There is also a decline in the net number of small to medium businesses looking to implement price hikes in the coming quarter,” Mr Lobb said. “This is further evidence that momentum is slowing.”
As noted in the White Paper, Insync believes inflation in the last few decades has been abnormally low. “Insync is not alone in its view that as the current level will indeed retract, it’s likely that it will settle around its longer-term norm. This is not bad for equity markets.”
Insync also noted that looking at the core drivers of inflation, “It’s hard to see price rises continuing as has been the case in the last year. Should the core drivers prices stabilise, inflation next year would drop dramatically.”