- Inflation, dormant for a decade, is in danger of returning
as a global phenomenon next year, according to an influential investment
survey published yesterday.
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- The authors of the annual Equity Gilt Study at Barclays
Capital warn that central bankers may be repeating the policy mistakes
of the Seventies, lulled into a false security by a combination of historically
unusual disinflation and flawed statistics. American inflation could hit
4 per cent by the end of 2005, they predict.
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- The study, which examines the performance of different
asset classes since 1900, suggests that increasing globalisation could
be a trigger for inflation, rather than the deflationary influence more
commonly assumed. Tim Bond, co-author, challenged the view that inflation
has necessarily been tamed by the additional supply capacity created in
new markets in Asia. Inflation has just been globalised, he said.
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- "There are 2 billion people in the industrialised
world but 4 billion who aren't, whose population is growing and who want
to join the industrialised world. That creates a persistent demand pressure,"
he says. The loosest monetary framework for a generation is exacerbating
a trend towards greater global economic demand, Mr Bond said, and the US
Federal Reserve is not reorienting itself quickly enough after having averted
deflation.
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- He said: "Provided the Fed gets motoring and the
Bank of Japan does the right thing at the right time, they should be able
to keep inflation in the 3-4 per cent range. But there is a risk that you
will get some extraordinary squeezes in some raw materials that translates
into something more vigorous."
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- The Barclays study shows how official statistics find
it impossible correctly to measure the gap between demand and supply, and
how the official measure of US inflation is distorted. The measure is 38
per cent composed of household rents which have fallen as first time and
buy-to-let buyers have increased. The study also argues that the widely
used survey of US payrolls is a poor measure of job growth compared with
the less widely publicised survey of households, which in recent months
has diverged to suggest a strong recovery in employment.
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- © 2004 Independent Digital (UK) Ltd
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- http://news.independent.co.uk/business/news/story.jsp?story=494781
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