BMO global asset management’s investment director Scott Spencer argued that inflation is more likely than stagflation, but says that there are so many moving parts it’s a difficult call.
“The US, EU, UK and Japan are all at very different stages of their cycle,” he said.
“Japanese banks are using ETFs and record amounts of QE, while the US stopped using QE in Q4 2014. But overall, we think inflation is the most likely scenario for the developed world.
“The traditional MV (money and velocity) = PY (price and output) equation means more money equals higher wages as long as there are high levels of employment.
“There is full employment in Japan which combined with QE will increase wages and growth. Similarly, the US may still invest domestically. Equally important are changes in China and emerging markets.
“They have traditionally had low prices and low inflation but factory orders and prices are making global inflation more likely.”
He conceded that stagflation is a risk, with the headwinds from technology companies being a contributory factor, but said: “overall there are lots of reasons to be upbeat on global growth.”
