Do you remember inflation? You will if you can recall the 1970s, when the oil shock, massive government deficits and spiralling wage demands drove price growth into double digits, and not just in developing countries.
In 1975, UK inflation hit an incredible 24 per cent, while in the US it topped out at 13.3 per cent in 1979, forcing the US Federal Reserve to increase interest rates to a record 20 per cent in a bid to rein in prices.
Those numbers seem unthinkable at a time when central bankers have been struggling to hit inflation targets of 2 per cent a year, despite near-zero interest rates and huge fiscal and monetary stimulus.
Inflation could make a comeback, though, and faster than you think. Governments might even welcome its return, at first. Are they right to do so, and what would that mean for your investments?
As the Covid-19 pandemic hammers the global economy, deflation is the more obvious threat today. The US economy is forecast to fall a record 34 per cent in the second quarter, according to Goldman Sachs, while the unprecedented oil price crash sent futures towards minus $37 per barrel last month.
That could swiftly reverse as governments and central banks combat the pandemic with the world's biggest ever stimulus package, one that dwarfs their efforts after the 2008 financial crisis.
Central banks are likely to tolerate or even aim for above-target inflation, partly to compensate for years of missing targets, partly to help inflate away sovereign debt.
The Fed’s balance sheet soared from $4.16 trillion (Dh15.28tn) in February to a record $6.72tn by May 6, a rise of 60 per cent. By the end of the year, it could top $10tn. Other countries are following its lead and when those trillions hit the global economy, inflation could catch fire.
Moukarram Atassi, head of investment management at the National Bank of Fujairah, says globalisation, labour outsourcing, technology advances, China joining the World Trade Organisation, high public debt levels and the ageing population have kept inflation in check for decades.
We are now at a turning point for globalisation, as Covid-19 and trade tensions between the US and China change attitudes to supply chains. Instead of sending production offshore to cut costs, many businesses will bring it back home, a process known as ‘reshoring’.
“These trends are likely to drive up prices and trigger inflation, and we may now be at the beginning of a turnaround,” Mr Atassi says.
Mark Richards, multi-asset strategist at fund manager Jupiter, says monetary easing after the financial crisis did not trigger inflation, but this time may be different. “Central banks are likely to tolerate or even aim for above-target inflation, partly to compensate for years of missing targets, partly to help inflate away sovereign debt,” he says.
In true 1970s style, we might even see another oil shock, if the low prices hit supply by killing off US shale, while demand soars once the lockdown reverses.
Today, US crude trades at around $25 a barrel. Egyptian billionaire Naguib Sawiris predicts it could hit $100 in just 18 months.
If the cost of petrol, food, clothes, holidays and borrowing starts to increase, consumers will suffer, especially if their wages do not keep up.
Many who have taken advantage of rock bottom interest rates will struggle to service their debt if interest rates hit 5 per cent, 10 per cent or even 15 per cent.
Last week, Nouriel Roubini, professor of economics at New York University, took inflation warnings a step further, arguing that accelerated deglobalisation and renewed protectionism “make stagflation all but inevitable”.
Stagflation is what happens when a stagnating economy simultaneously suffers inflation, and is the worst of both worlds. There is a reason Mr Roubini is known as “Dr Doom”, but he prefers to think of himself as “Dr Realistic”.
Some say the inflation threat has been overdone. Jahangir Aka, managing director for the Middle East & Africa at fund manager Neuberger Berman, says it is hard to see amid falling gross domestic product, oversupply of commodities, and collapsing consumer confidence. “A decade of stimulus failed to generate inflation. More of the same is unlikely to achieve a different result,” he says.
Paul Donovan, chief economist at UBS, says central banks are not attempting to stimulate the economy, but save it. “This is about making sure things do not get worse," he says. "It is not about creating inflation, but preventing more disinflation.”
Central bankers are trying to keep the banking system and bond markets functioning, and match liquidity demand with supply. “None of this is stimulus. It is damage limitation,” adds Mr Donovan.
Dr Ryan Lemand, senior executive officer of ADS Investment Solutions, says the recovery will take a "very, very long time”, as it will destroy demand. “Consumers will be put off buying that new car," he says. "Companies will be reluctant to hire. I do not see inflation in these circumstances.”
Instead of preventing job losses and company foreclosures, today's stimulus will flood into the stock market, Mr Lemand says: “The Fed is even buying exchange traded funds, which is a direct injection into share prices.”
That largely explains the dramatic rebound in share prices since the lows of late March. Investors piled into shares in anticipation of stimulus-driven gains, even as the economic news got worse.
So where should you invest if we do get inflation? Mr Atassi says rising inflation tends to work well generally for tangible assets such as real estate, energy, precious metals, industrial metals and commodities.
Stock markets can perform well, but some companies are better placed to survive inflation than others. “Those with strong pricing power fare best, typically those operating in materials, commodities and energy. Utilities and telecom companies do well. Financials, consumer staples and the healthcare sector also tend to benefit, as they can pass on costs to customers,” Mr Atassi adds.
Other businesses will struggle, for example car makers, as buyers are priced out of the market.
Over time, inflation reduces the real value of money and Mr Richards says this is good news for gold, a traditional inflation hedge.
Inflation-linked bonds are also attractive, as the interest they pay will rise in line with prices. By contrast, bonds paying a fixed rate of interest will fall out of favour, as its real value shrinks.
Clem Chambers, founder of stocks and shares website Advfn.com, says cryptocurrency Bitcoin is another likely beneficiary. “Bitcoin loves trade wars, threats of military action and any other event that causes people to seek a safe haven, including inflation," he says. "If inflation reigns going forward, its price will go off the dial. I’m currently amassing Bitcoin.”
Property can do well, as prices rise in line with inflation, as do rental incomes.
Arran Summerhill, director at Holo Mortgage Consultants, says this is good news for existing mortgage borrowers. “As property prices rise, mortgage loan-to-values should decrease in real terms, putting owners in a good position if they sell,” he says.
However, this is bad news for potential buyers, who will need larger deposits and may have to pay higher mortgage rates, Mr Summerhill adds.
Inflation creates winners as well as losers. That makes it dangerous, because many could welcome it at first. But if it gets out of control, everybody suffers.
People are nostalgic for the 1970s because of flares and Abba. Nobody wants to see a reprise of inflation, or worse, stagflation.
UAE currency: the story behind the money in your pockets
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What is type-1 diabetes
Type 1 diabetes is a genetic and unavoidable condition, rather than the lifestyle-related type 2 diabetes.
It occurs mostly in people under 40 and a result of the pancreas failing to produce enough insulin to regulate blood sugars.
Too much or too little blood sugar can result in an attack where sufferers lose consciousness in serious cases.
Being overweight or obese increases the chances of developing the more common type 2 diabetes.
Gran Gala del Calcio 2019 winners
Best Player: Cristiano Ronaldo (Juventus)
Best Coach: Gian Piero Gasperini (Atalanta)
Best Referee: Gianluca Rocchi
Best Goal: Fabio Quagliarella (Sampdoria vs Napoli)
Best Team: Atalanta
Best XI: Samir Handanovic (Inter); Aleksandar Kolarov (Roma), Giorgio Chiellini (Juventus), Kalidou Koulibaly (Napoli), Joao Cancelo (Juventus*); Miralem Pjanic (Juventus), Josip Ilicic (Atalanta), Nicolo Barella (Cagliari*); Fabio Quagliarella (Sampdoria), Cristiano Ronaldo (Juventus), Duvan Zapata (Atalanta)
Serie B Best Young Player: Sandro Tonali (Brescia)
Best Women’s Goal: Thaisa (Milan vs Juventus)
Best Women’s Player: Manuela Giugliano (Milan)
Best Women’s XI: Laura Giuliani (Milan); Alia Guagni (Fiorentina), Sara Gama (Juventus), Cecilia Salvai (Juventus), Elisa Bartoli (Roma); Aurora Galli (Juventus), Manuela Giugliano (Roma), Valentina Cernoia (Juventus); Valentina Giacinti (Milan), Ilaria Mauro (Fiorentina), Barbara Bonansea (Juventus)
TOURNAMENT INFO
Fixtures
Sunday January 5 - Oman v UAE
Monday January 6 - UAE v Namibia
Wednesday January 8 - Oman v Namibia
Thursday January 9 - Oman v UAE
Saturday January 11 - UAE v Namibia
Sunday January 12 – Oman v Namibia
UAE squad
Ahmed Raza (captain), Rohan Mustafa, Mohammed Usman, CP Rizwan, Waheed Ahmed, Zawar Farid, Darius D’Silva, Karthik Meiyappan, Jonathan Figy, Vriitya Aravind, Zahoor Khan, Junaid Siddique, Basil Hameed, Chirag Suri
F1 The Movie
Starring: Brad Pitt, Damson Idris, Kerry Condon, Javier Bardem
Director: Joseph Kosinski
Rating: 4/5
Lexus LX700h specs
Engine: 3.4-litre twin-turbo V6 plus supplementary electric motor
Power: 464hp at 5,200rpm
Torque: 790Nm from 2,000-3,600rpm
Transmission: 10-speed auto
Fuel consumption: 11.7L/100km
On sale: Now
Price: From Dh590,000
The Dark Blue Winter Overcoat & Other Stories From the North
Edited and Introduced by Sjón and Ted Hodgkinson
Pushkin Press
MATCH INFO
UAE Division 1
Abu Dhabi Harlequins 12-24 Abu Dhabi Saracens
UAE currency: the story behind the money in your pockets
Electoral College Victory
Trump has so far secured 295 Electoral College votes, according to the Associated Press, exceeding the 270 needed to win. Only Nevada and Arizona remain to be called, and both swing states are leaning Republican. Trump swept all five remaining swing states, North Carolina, Georgia, Pennsylvania, Michigan and Wisconsin, sealing his path to victory and giving him a strong mandate.
Popular Vote Tally
The count is ongoing, but Trump currently leads with nearly 51 per cent of the popular vote to Harris’s 47.6 per cent. Trump has over 72.2 million votes, while Harris trails with approximately 67.4 million.
Killing of Qassem Suleimani
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Batti Gul Meter Chalu
Producers: KRTI Productions, T-Series
Director: Sree Narayan Singh
Cast: Shahid Kapoor, Shraddha Kapoor, Divyenndu Sharma, Yami Gautam
Rating: 2/5
Kanguva
Director: Siva
Stars: Suriya, Bobby Deol, Disha Patani, Yogi Babu, Redin Kingsley
Recipe
Garlicky shrimp in olive oil
Gambas Al Ajillo
Preparation time: 5 to 10 minutes
Cooking time: 5 minutes
Serves 4
Ingredients
180ml extra virgin olive oil; 4 to 5 large cloves of garlic, minced or pureed (or 3 to 4 garlic scapes, roughly chopped); 1 or 2 small hot red chillies, dried (or ¼ teaspoon dried red chilli flakes); 400g raw prawns, deveined, heads removed and tails left intact; a generous splash of sweet chilli vinegar; sea salt flakes for seasoning; a small handful of fresh flat-leaf parsley, roughly chopped
Method
▶ Heat the oil in a terracotta dish or frying pan. Once the oil is sizzling hot, add the garlic and chilli, stirring continuously for about 10 seconds until golden and aromatic.
▶ Add a splash of sweet chilli vinegar and as it vigorously simmers, releasing perfumed aromas, add the prawns and cook, stirring a few times.
▶ Once the prawns turn pink, after 1 or 2 minutes of cooking, remove from the heat and season with sea salt flakes.
▶ Once the prawns are cool enough to eat, scatter with parsley and serve with small forks or toothpicks as the perfect sharing starter. Finish off with crusty bread to soak up all that flavour-infused olive oil.
What is Bitcoin?
Bitcoin is the most popular virtual currency in the world. It was created in 2009 as a new way of paying for things that would not be subject to central banks that are capable of devaluing currency. A Bitcoin itself is essentially a line of computer code. It's signed digitally when it goes from one owner to another. There are sustainability concerns around the cryptocurrency, which stem from the process of "mining" that is central to its existence.
The "miners" use computers to make complex calculations that verify transactions in Bitcoin. This uses a tremendous amount of energy via computers and server farms all over the world, which has given rise to concerns about the amount of fossil fuel-dependent electricity used to power the computers.
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UK-EU trade at a glance
EU fishing vessels guaranteed access to UK waters for 12 years
Co-operation on security initiatives and procurement of defence products
Youth experience scheme to work, study or volunteer in UK and EU countries
Smoother border management with use of e-gates
Cutting red tape on import and export of food
Name: Peter Dicce
Title: Assistant dean of students and director of athletics
Favourite sport: soccer
Favourite team: Bayern Munich
Favourite player: Franz Beckenbauer
Favourite activity in Abu Dhabi: scuba diving in the Northern Emirates
Results
6pm: Dubai Trophy – Conditions (TB) $100,000 (Turf) 1,200m
Winner: Silent Speech, William Buick (jockey), Charlie Appleby
(trainer)
6.35pm: Jumeirah Derby Trial – Conditions (TB) $60,000 (T)
1,800m
Winner: Island Falcon, Frankie Dettori, Saeed bin Suroor
7.10pm: UAE 2000 Guineas Trial – Conditions (TB) $60,000 (Dirt)
1,400m
Winner: Rawy, Mickael Barzalona, Salem bin Ghadayer
7.45pm: Al Rashidiya – Group 2 (TB) $180,000 (T) 1,800m
Winner: Desert Fire, Hector Crouch, Saeed bin Suroor
8.20pm: Al Fahidi Fort – Group 2 (TB) $180,000 (T) 1,400m
Winner: Naval Crown, William Buick, Charlie Appleby
8.55pm: Dubawi Stakes – Group 3 (TB) $150,000 (D) 1,200m
Winner: Al Tariq, Pat Dobbs, Doug Watsons
9.30pm: Aliyah – Rated Conditions (TB) $80,000 (D) 2,000m
Winner: Dubai Icon, Patrick Cosgrave, Saeed bin Suroor
Most sought after workplace benefits in the UAE
- Flexible work arrangements
- Pension support
- Mental well-being assistance
- Insurance coverage for optical, dental, alternative medicine, cancer screening
- Financial well-being incentives
The specs
- Engine: 3.9-litre twin-turbo V8
- Power: 640hp
- Torque: 760nm
- On sale: 2026
- Price: Not announced yet
Company profile
Date started: January, 2014
Founders: Mike Dawson, Varuna Singh, and Benita Rowe
Based: Dubai
Sector: Education technology
Size: Five employees
Investment: $100,000 from the ExpoLive Innovation Grant programme in 2018 and an initial $30,000 pre-seed investment from the Turn8 Accelerator in 2014. Most of the projects are government funded.
Partners/incubators: Turn8 Accelerator; In5 Innovation Centre; Expo Live Innovation Impact Grant Programme; Dubai Future Accelerators; FHI 360; VSO and Consult and Coach for a Cause (C3)
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
