Lombard Odier downplays inflationary threat to wealth
Swiss bank Lombard Odier Darier Hentsch is predicting the cost of living in the eurozone over the next five years will be lower than in the preceding five, despite widespread concerns about rising inflation. ih it believes the global economy will avoid an inflationary crisis similar to that experienced in the 1970s.
Philippe Schindler, a strategist at the bank, is predicting a decline in average euroland inflation over the next five years, from 2.1% between 2003 and 2007 to 1.9%.
He expects global inflation will average 5% to 2012: above the 3.7% rate experienced since 2003 but well below the average of the 1970s, 1980s or 1990s.
In a report, Schindler said he expected central banks to avoid the mistakes they made in responding to price pressure from raw materials in the 1970s and 1980s, decades when global inflation averaged well above 10%.
"In the medium term, the concurrence of opposing forces will prevent runaway inflation," said Schindler in the report. "On the one hand, globalization, productivity gains, and the consequences of the credit crisis (on banks and indebted households) will have a lasting deflationary effect. On the other hand, the increasing scarcity of raw materials and the persistence of accommodative economic policies will fuel inflation."
He added that the declining influence of trades unions would mean wage inflation would be contained and productivity gains and competition would diminish the pricing power of manufacturers, despite rising costs.
Other private banks, including HSBC and Barclays Wealth, have recently highlighted the risk of rising inflation eating away at the wealth of clients.
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