Friday, 31 December 2004

Inflation cycle

With increasing signs of a global economic slowdown, I have been wondering whether the inflation cycle has turned down. Singapore and Hong Kong, for examples, recently reported subdued inflation.

Other recent news indicate that, after a long boom, housing prices in some markets at least have started to fall. Yesterday, the Nationwide building society reported that house prices in the UK fell 0.2 percent this month, the second time in three months it has fallen. The annual rate of increase of 12.7 percent was the lowest in three years. Nationwide expects property price increases to moderate further in 2005. Similar predictions have been made for Australia, which had, until recently, also been witnessing a housing boom.

However, such signs are absent in the US. And in other parts of Europe, inflation indicators in Germany and Italy actually turned up in December.

So maybe global inflation is not quite on the way down. If you are waiting to load up on bonds, it may pay to wait a little longer.

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