A specter wanders around Europe and the world. And no longer the one evoked over one hundred and seventy years ago by Marx and Engels in their Manifesto – communism – but the one now feared by central bankers (and not only): the specter of inflation. After nearly 15 years of silence, with price growth rates that after the financial crisis of 2008 they had stabilized on an annual average of less than 1%, with negative peaks of -0.1% in 2016 and -0.2% in 2020, the first year of the Covid-19 crisis, the erosion of purchasing power re-exploded with virulence, precisely because of the post-pandemic global economic recovery that took place strongly this year. At the end of November 2021, the consumer price index in Italy recorded an annual increase of 3.8%, in the eurozone the average growth was 4.9% while in the United States it was close to 7%, stopping (for the moment) at 6.8%.
–
Few protections
If these annual inflation levels were to be confirmed over the next 10 years, the loss of purchasing power of the capital kept liquid and uninvested would amount to 28.5%, while it would have been a much more modest 6% if the average prices of the next decade had confirmed that of 2019, the last pre-pandemic year when the increase in the cost of living stopped at + 0.6% per year. What makes this scenario particularly difficult is the lack of zero or low risk investment alternatives. If the current accounts do not bear interest, the Bots continue and presumably will continue for many months to have negative interest rates.Only current deposit accounts offer positive returns for locked-up sums over 6-12 months which partially reduce capital erosion thanks to an annual return of around 1 – 1.5%. As we can see, the only possible alternative to the hidden inflation tax is investing in higher risk assets, for example equity, since the bond market, even beyond the shortest maturities, is still unable to offer higher or higher returns. equal to the inflation rate.
–
Transient phenomenon?
In the 25 years of overall contained inflation due to the downward pressure or the freezing of prices due to globalization – therefore in the period from 1996 to 2021 – the loss of purchasing power of the currency has reached 35% and at the same time the stock exchanges global companies have increased their capitalization sixfold thereby multiplying the wealth of assets invested in venture capital. However, now that globalization has entered a phase of rethinking, both due to the pandemic and the processes of returning home of companies that previously had relocated (reshoring), it is difficult to think of a similar boom in the financial markets for the next decade. And it becomes crucial that central banks, as they have announced, undertake to bring inflation back to a long-term average value of around 2%.
–
