Tags: Ariel Investments | Charles Bobrinskoy | Inflation | Investors

Ariel Investments' Charles Bobrinskoy: It's 'Silly' to Expect Inflation to Stay Low

(Dollar Photo Club)

By    |   Tuesday, 21 March 2017 10:26 AM

Inflation is poised to skyrocket, and savvy investors should protect their portfolios now, one portfolio manager advises.

Inflation expectations are now relatively low, economic data show, "which is just silly," Charles Bobrinskoy, head of investment group at Chicago-based Ariel Investments, told CNBC.

The median expected price change over the next 12 months, as measured by the University of Michigan's Surveys of Consumers, stands at 2.7 percent, CNBC.com reported. For some perspective, the expectations for inflation in 1980 rose as high as 10.4 percent.

Inflation expectations have been more or less contained at 2 to 3 percent between since late 2014. Actual inflation has run below 2 percent, CNBC reported.

Meanwhile, the Federal Reserve Bank of St. Louis' 5-Year Breakeven Inflation Rate, another measure of expected inflation, is 1.89 percent, its highest levels since mid-2014.

Bobrinskoy points to some key factors that could push inflation higher, including a strengthening economy and the Federal Reserve continuing to hike interest rates.

"There's a lot of cash, a lot of lending going on around the world … labor costs are going up," and thus inflation is ticking higher, he told CNBC.

"We have the first president who's ever tried to talk down the value of the U.S. dollar; that's never happened before. And the dollar going down is what inflation is all about," Bobrinskoy said.

When it comes to Fed hikes, "even if it's only two times more, that'll be another 75 basis points this year," he said, which will inevitably affect things like mortgages, rents and other economic factors when considering rising inflation, CNBC reported.

The U.S. stock market has been on record-setting spree since the election of  Trump as president, but the rally has faltered in recent weeks as investors fret over the lack of clarity on his proposals to reform taxes and cut regulation.

Analysts have also said the Trump administration is spending too much of its political capital to pass a Republican-proposed healthcare bill, which may leave it wanting for support when it tries to reform the tax code.

"With tax reform and infrastructure spending getting pushed to the end of this year or even next year, it will eventually weigh on sentiment and business confidence," said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.

"Eventually, the market will lose patience," Frederick told Reuters.

To be sure, one of the most-respected economic minds of our time also has recently warned about soaring inflation.

Former Federal Reserve Chairman Alan Greenspan reportedly warns that Trump's economic policies risk plunging America into a period of 1970s-style stagflation with low growth and "out of control" inflation, the UK Telegraph reported.

Under Trump, Greenspan warns that America could enter a "destabilizing period" where inflation rises sharply as workers begin to demand higher pay.

This could return America to "what happened in the 1970s, when we last experienced stagflation and there were real concerns about inflation spiraling out of control,” he predicted, according to Gold Investor.

(Newsmax wires services contributed to this report).

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Inflation is poised to skyrocket, and savvy investors should protect their portfolios now, one portfolio manager advises.
Ariel Investments, Charles Bobrinskoy, Inflation, Investors
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2017-26-21
Tuesday, 21 March 2017 10:26 AM
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