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Inflation set to remain steady in Europe, says Dexia

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Dexia Asset Management (Dexia AM) has today launched its latest special report on inflation titled “The return of inflation expectations”. The report considers the inflation outlook for 2011 and looks specifically at the investment case for Europe, the US and Emerging Markets.

 

According to the report, growth remains solid on average across the Eurozone but inflation is up since last year [2.65 in March (estimate), up from 2.4% in February and 1.9% in November], with a wide disparity between countries e.g. 1.7% for Ireland vs. 4% and 5.2% for the UK and Greece respectively. The UK faces a choppy rest of the year, with inflation currently 200bps over BoE target.

Looking ahead in Europe, the report says that inflation is likely to remain under control but this will be dependent on the extent to which agricultural and energy commodity prices rise.

n the US meanwhile, rising commodity prices are putting consumer prices under pressure – Dexia AM’s analysis estimates that the rise in gasoline prices, for example, could have a +0.7% point effect on the CPI if sustained. Despite this, elevated unemployment means that core inflation should remain contained.

In addition, while inflationary fears have receded slightly since the end of 2010 and the outlook in emerging economies varies from one region to another, they are collectively on the cusp of a new period of inflation as input price pressures intensify.

Sylvain De Bus, manager of the Dexia Bonds Euro Inflation Linked fund at Dexia Asset Management, says:  “In an uncertain inflationary environment like this, investors can benefit from the specific characteristics of inflation-linked bonds.” De Bus, added:  “With a range of strategies available that take inflation into account, including; inflation hedges, hedged shares, high dividend or commodities, investors can more effectively safeguard against unexpected inflation rises and even benefit from increased inflation.”  

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