Inflation fears are premature and overplayed: deVere CEO

Heightened fears about inflation are overplayed and could negatively impact investors’ portfolios.

The warning comes as the U.S. Federal Reserve this week upgraded its growth forecast to 6.5% from 4.2% previously for 2021.

As the world increasingly looks towards a post-pandemic global economic rebound, inflation fears have been heightened in recent weeks.

These concerns are now likely to be exacerbated as the Fed, the central bank responsible for the world’s largest economy, has dramatically upgraded its outlook. This can be expected to further fuel rhetoric about inflation.

It will be argued by some that as inflation climbs, we will have higher interest rates and this could lead to lower stock prices.

We should expect a short-term jump in prices as economies re-open, however, longer-term inflation fears, due to pent-up demand are premature and are being overplayed.

Earlier in the week, an example was given: people might book one trip away, but they are unlikely to book five or six in one hit.

History teaches us that a diversified portfolio has typically beaten inflation over time. This was true even in the 1970s – a time when inflation fears were rife in many quarters.

Back then, the Fed was late to step in. Should inflation jump too far now, the Fed is highly unlikely to repeat the same mistake.

Investors should certainly keep an eye on inflation. But the fear of it is arguably more dangerous to investors than inflation itself as they could be put off investing in stock markets, meaning they could miss out on good returns during the economic rebound.