Economic recovery will bring inflation back from the dead: Partners Group

Government efforts to defend economies from the global downturn – primarily official interest rate cuts and spending packages – could make inflation a significant threat to investors’ portfolios once the crisis has run its course, according to Urs Wietlisbach, executive vice chairman of Partners Group, a CHF24 billion (US$21 billion) alternatives manager.

By 2010, the global downturn should have seen its low point, Wietlisbach said, but in 2011 and 2012, the “impact of all the money being printed by the different central banks in the world” will become discernable as inflation returns.

“In the OECD countries, we could easily see 5 per cent inflation for one or two years in a row. But it won’t be as bad as the 1970s – we won’t have several years of 10 per cent inflation.”

He said the excess money would artificially inflate asset prices, and as economic growth returned, resource-hungry countries such as China would boost demand for commodities.

“Inflation was not a topic at all in the last 15 years. But just before the downturn we got a taste of it, with oil prices at US$150 a barrel.”

Investments providing a hedge against inflation include inflation-linked bonds, real estate, and commodities. Forays into resources that employ private equity techniques, such as investing in mining, forestry or clean-tech operations, or in water infrastructure, also offer some defence against inflation, albeit an illiquid one.